How the emergence of the BRICS as an alternative to the global dominance of the US dollar will usher in global bitcoin adoption.
This is an opinion editorial by Milan Stanojevic, an elementary school teacher and filmmaker.
Since the end of World War II, the United States has consistently been the dominant global superpower. The Soviet Union vied for superiority during the Cold War, but ultimately failed by losing control of its satellite states. This was evident when the Berlin Wall fell in 1989.
In recent years, US hegemony has been challenged by China, a nation that has amassed enormous wealth since opening its economy to the world. China now appears poised to usurp global power as it continues to engage in a form of financial imperialism around the world (for more, read China Unbound by Joanna Chiu). Today, both Russia and China are part of a global picture known as BRICSwhich includes Brazil, India and South Africa, with other countries, such as Turkey and Saudi Arabia, perhaps waiting to join as well.
In case you haven’t been paying attention, the world is undergoing a major paradigm shift, with BRICS at the center. Banks around the world are failing, Saudi Arabia and Iran are negotiating historic peace talks and the countries are beginning to deviate from the US dollar as the world’s reserve currency.
So, an important question to consider is how does the current state of geopolitics and macroeconomics shape the future of a hyperbitcoinized world? I recognize that no one can predict the future with any real certainty, however I would like to share my view of how game theory develops over time.
I believe that, in the coming decades, the emergence of the BRICS as an alternative to US hegemony will see the global economy evolve in three phases: Phase one will be a pivot from a unipolar to a multipolar financial world. In phase two, Bitcoin becomes a medium of exchange and unit of account for many nations. In the third and final phase, we experience real hyperbitcoinization.
Phase One: From USD to Gold
Most people have no idea this is happening, but we are already in the early stages of phase one and the creation of a multipolar world.
In the 1970s, under the Nixon presidency, Saudi Arabia agreed to price its oil in US dollars in exchange for military defense. Essentially every other country was forced to hold US dollars as a result, thus making it the world’s reserve currency. Having such an exorbitant privilege means that every time the US government decides to print money, it can essentially buy oil for free. As a result of being the global reserve currency, US Treasuries became the safest asset for investors (I know this statement seems comical today). The consensus has been that there is no chance of the US defaulting on its own debt, since it can print ad infinitum. Nation states have bought huge levels of US debt for over 50 years.
However, this is no longer true for all nations. Porcelain and Russia they have been buying fewer Treasuries for the past decade. Instead of holding US debt as an asset, they have been increase your gold reserves. India, is also accumulating a gold reserve. It seems that the BRICS nations are working to return to a gold standard. Under this regime, currencies would once again be tied to a rare commodity that many have used as a store of value for thousands of years. But these states are unlikely to settle most transactions using physical gold, given how difficult it is to transport and secure. What is certain, however, is that Russia now allows countries to buy its oil in rubles, yuan and, perhaps soon, rupees. In this phase, a minority of nations will continue to decrease their holdings of the US treasury, transact in foreign currency, and acquire as much gold as humanly possible.
The rest of the world, particularly in the West, will continue to function as it has since the 1970s. Many countries will still be forced to hold US dollars to buy oil. American debt, stocks and real estate will continue to serve as a store of value for most citizens. And fiat currencies, particularly the US dollar, will serve as the dominant units of account. I predict that this first phase will not last more than 20 more years.
During the course of this phase, many countries are likely to default on their debts and experience currency collapses. They will start transacting locally in US dollars the same way some nations do even today. Rising debt/GDP levels and inflation, along with tax increases and unemployment, will cause mass riots. Governments will desperately need a solution to an unsolvable problem.
Phase Two: The Beginning of a New Era
Phase two marks the beginning of a new era; that’s when there will be no choice but to switch to a fundamentally different monetary system. At this time, non-BRICS nations will quickly adopt bitcoin as a medium of exchange and unit of account. This means that everyone is paid in bitcoin and uses it as a store of value. Real estate will still be owned, but people will buy it as a place to call home, rather than a place to park their wealth. Stocks will continue to be bought and traded, but Bitcoin will be seen as the primary savings vehicle for everyone. Sovereigns and people (like you, most likely) who have hoarded bitcoin for years will become incredibly rich in a very short period of time.
In this phase, globalization will not be as impactful as it is today, as the BRICS countries will be alienated from the rest of the world. China and Russia will trade almost exclusively with their allies, ultimately weakening their economies. These states will compete in gold production and the dominant unit of exchange will vary from time to time. Phase two will happen faster than phase one, perhaps in as little as 10 years.
Phrase Three: Hyperbitcoinization
The third and final phase is less complicated. Most of the world will have already transitioned to a bitcoin standard. For nations that have not yet done so, they will notice the increase in wealth and living standards abroad. By now, El Salvador will have become one of the richest countries in the world. Nations that remain on a gold standard will suffer as a result of being cut off from the rest of the world. Trust in the current system will disappear.
Also, people will recognize that compared to bitcoin, gold is an inferior store of value. Verifying the authenticity of gold is difficult. Transporting and insuring it is even more onerous. Russia, China and their allies will have no choice but to adopt bitcoin as their local medium of exchange and unit of account. Phase three will also happen quickly. I predict this will occur over five to 10 years.
This is how I envision game theory for the next 20-30 years. Perhaps most, if not all, of my predictions will be wrong. What I am sure of, however, is that our world is changing rapidly. Our monetary system is broken. This is reflected in the current banking crisis.
Even if most of my predictions are wrong, we desperately need a return to a sound monetary system. Bitcoin is the only viable solution IMHO. It may be wise to accumulate some satellites now while you still can. You or your children can benefit greatly in the future.
This is a guest post by Milan Stanojevic. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
