Author: Revelo Intel Source: substack Translation: Shan Ouba, Golden Finance
In the last issue we took a deep dive into the world of emerging markets. We covered some of the background that the term encompasses, how emerging markets have become more important in recent events such as the unwinding of the yen carry trade, and compared emerging markets to cryptocurrencies. In this article, we will focus specifically on de-dollarization, a move that would benefit emerging markets more than developed economies if it were a huge success. This is, of course, a macro topic that fits crypto very well, as the widespread success of cryptocurrencies is in some ways diametrically opposed to the prominence of the US dollar.
Of course, the interests of countries vying for dollar dominance and cryptocurrency supporters are not completely aligned. The major countries most affected by US sanctions, such as China and Russia, have their own fiat currencies. These countries may be less indebted and less influential, but there is no doubt that cryptocurrency natives, especially the older generation who are closer to Bitcoin power, hate all forms of fiat currency.
It is in this distinction that we can find the divergence between the crypto-native markets and the emerging markets. However, these two seemingly completely independent groups may both want to establish a financial system based on hard currency, or at least a harder currency than the current fiat currency system led by the US dollar. The BRICS alliance, which consists of emerging markets such as Brazil, Russia, China, South Africa, etc., has proposed some plans to develop its own payment system and abandon the SWIFT system completely. It is certain that this solution uses blockchain to some extent, and there are even rumors that the payment system may be based on gold, although these are just rumors at the moment.
In the field of cryptocurrency, it is a well-known fact that the US dollar is the dominant currency on the chain and in real life. Almost all stablecoins are pegged to the US dollar, or at least attempt to be, while there is little interest in tokenized euros or other stablecoins. This remains the case despite the fact that currencies such as the Singapore dollar ($SGD), Swiss franc ($CHF) have significantly outperformed the US dollar in recent years. The US has done a pretty good job over the years in promoting the use of the US dollar in various areas of international trade. This can be seen in agreements with countries such as Saudi Arabia to sell oil for dollars, and even in agreements such as the Plaza Accord, which actually devalued the dollar and made other countries' exports less competitive. It's all about incentives. This can be seen even on a smaller scale in the Eurozone, where the Euro ($EUR) is one of them. The Euro was launched at the turn of the century and was pegged 1:1 to the German Mark. As the powerhouse and major industrial power in Europe, forcing the various smaller countries within the EU (European Union) to effectively use Germany's more expensive currency has proven extremely prohibitive, as these smaller countries simply cannot be as competitive as they should be. The benefit of smaller, less developed economies is that they can produce goods more cheaply, giving them an advantage over more developed economies. This even extends to areas such as tourism; who doesn't like to vacation in a cheaper country? However, when the currencies of EU member states were unified, a lot of this was cancelled out. Suddenly, sourcing manufacturing from Romania, Bulgaria, etc. wasn't so attractive anymore. This is the price these smaller countries have to pay to be considered part of the EU, which many see as a prestige, and it's not without its benefits.
In a world where everyone uses the dollar, the United States benefits, and its citizens benefit to a certain extent. Americans are spoiled relative to the rest of the world. However, being the largest deficit country usually means high consumption rates, and deindustrialization by outsourcing manufacturing to other, cheaper countries has consequences. American consumers have low savings rates and high spending power; they have to buy everything that other countries, such as China, export. This can be seen in the vast array of credit options available, and no other country can match the United States in this regard. There are even various fintech solutions now that allow people to "buy now, pay later."
There has been a tug-of-war and struggle between the two sides over maintaining the strength of the dollar while limiting social unrest. As one of several issues in this election cycle, the topic of de-dollarization has received more attention. Interestingly, Trump and his vice presidential candidate JD Vance have taken a very realistic stance on this issue, acknowledging that other countries are taking various initiatives to decouple from the dollar. To deal with some of these issues, the Republican Party advocates bringing more manufacturing back to the United States and even deliberately devaluing the dollar to a certain extent to make American exports more competitive globally. In addition to this, tariffs are likely to be imposed no matter who is president, and Biden will impose a 100% tariff on Chinese-made electric vehicles.
The term BRICS was actually coined by Goldman Sachs economist Jim O'Neill in 2001, long before these countries actually formed the BRICS alliance. O'Neill made this point in a report titled The World Needs Better Economic BRICS, which now looks prophetic in light of developments. Jim believes that Brazil, Russia, India and China will join forces to form the BRICS (the "S" for South Africa was not initially included in his analysis). It was not until 2006 that these countries officially joined together to form the BRICS alliance, which now has more members than the countries in its acronym, and more countries have applied to join. This week, Turkey submitted its application to join the alliance. Turkey is the world's 12th largest economy by real GDP and has a large young population that has only recently fallen below replacement level. The BRICS application coincides with local protests against the establishment of US military bases in the country. Turkey has previously expressed interest in joining the European Union on many occasions and is a key member of the NATO alliance. The country's president, Recep Tayyip Erdogan, also made harsh remarks after Israel recently launched a series of military strikes in the region. This is just one example of a country clashing between the old and new emerging blocs, with the international use of the U.S. dollar being the core issue behind the split. The BRICS alliance promotes the idea of free trade between member countries unhindered by sanctions. These countries are not necessarily friendly, and while this comes down to semantics, they seem to promote the idea of just doing business and not interfering in the affairs of other member countries. The BRICS's efforts to de-dollarize are not the same as what cryptocurrencies want to achieve, but the concepts can perhaps be seen as moving in the same direction. In theory, these countries are not the role models of adoption that crypto supporters are looking for, as the industry likes to pride itself on transparency, permissionlessness, etc. But then again, the countries with the highest cryptocurrency penetration are not the ones that crypto Twitter pundits usually talk about the most, with places like Vietnam, Brazil, and even Iran ranking in the top few by percentage of population that owns crypto assets. Adoption is likely to be fastest when cryptocurrencies are not a want, but a necessity.
So far, we have discussed how the U.S. dollar and even the euro have had a negative impact on countries around the world, and the various efforts between these countries to find better solutions in international trade and even payments. China is the obvious choice in terms of influencing other countries to de-dollarize. Not only does China have a huge influence, but it also holds and continues to earn a large amount of U.S. dollars. China holds the second largest amount of U.S. debt in the world, second only to Japan. China also continues to earn a large amount of dollars every month through its historically large trade surplus, a large portion of which is paid in U.S. dollars.
“What keeps me up at night is, where is China spending a trillion dollars a year? Because I can't see it, and that scares me. Because if I had a trillion dollars, I would buy Nvidia stock. ”
—Michael Drewry, Chief Economist at McVean Trading & Investments
In this statement, Michael was referring to China’s trade surplus, which has ballooned to over $800 billion per year over the past few years. The trade surplus measures all of China’s exports, which China pays for primarily in euros or dollars, minus all of its imports, also paid for primarily in euros and dollars. This has more than doubled in just a few years, and pre-pandemic, China’s surplus was only around $400 billion. With Western hostility toward China, Russia, Iran, and others growing, China is actively seeking to diversify its foreign exchange reserves and deploy the foreign exchange it earns through trade as quickly and efficiently as possible.
China, whether through actual government institutions, state-owned enterprises (SOEs), Whether it is the US dollar or some other vehicle, it is likely that they are shadow owners of major US assets and companies. This is further aided by the US’s lack of capital controls on foreign capital entering the system. Having the US dollar used for global trade means that the country must remain relatively open to foreign stakeholders purchasing large amounts of US assets. As a native of cryptocurrencies, this naturally begs the question: are cryptocurrencies among the assets worth purchasing? While the idea is a bit far-fetched, it cannot be completely ruled out. Various experts and leaders have raised the idea that this cycle may see more nation-states adopting cryptocurrencies. This trend is coming from small countries like El Salvador, which owns BTC Whether it comes from a smaller group of crypto funds and institutions, or from larger, more influential countries, remains to be seen.
China is forced to be forward-thinking; its alliances are primarily with emerging economies, hoping that these economically backward countries may eventually surpass the West and replace a large portion of China's need to trade with developed countries. Chinese money is looking for opportunities to invest large amounts of dollars and euros into assets and infrastructure projects that will win it more influence.
China's relationship with cryptocurrencies has always been interesting, and before the ban, China was a major hub for Bitcoin miners. Even after the ban, the country still has the second largest market share for Bitcoin miners.
Cryptocurrency, or more specifically BTC, it may be hard to attract some sovereign buying. In any case, this possibility may only become apparent in hindsight, as cryptocurrencies may be harder to track than traditional stock and real estate purchases, and of course gold. Trump's speech in Nashville supporting a strategic reserve of BTC gives the idea some legitimacy, although the market reaction was muted. All this suggests that announcements and rhetoric have far less impact on Bitcoin than they once did; what really matters is actual inflows. And those inflows may come from some unexpected places.
Overall, de-dollarization may be one of those things that is easy to predict but difficult to time. Events such as the seizure of foreign dollar holdings by Russia, the Gulf states' choice to trade oil in local currencies or even yuan, and other date-dependent catalysts make this ongoing process nonlinear and difficult for the layperson to time in any meaningful way. However, every time trade is conducted through a new method of exchange that differs from the status quo, or foreign assets in dollars or euros are seized, it opens up the possibility that cryptocurrencies can play a role.
Binance.US faces suspensions in Alaska and Florida amid regulatory scrutiny. Actions cite 'immediate danger' and license renewal rejection. Amid changes and charges, Binance.US collaborates for regulatory compliance.
Huang BoWith the SEC and Binance US both claiming victory, the deal is ultimately a compromise, in favor of users.
BeincryptoIn addition to the CFTC lawsuit, a U.S. District Court has halted the sale of Voyager Digital.
cryptopotatoIf the deal goes through successfully, Voyager customers could recover 73% of their assets.
BeincryptoAn errant Google Forms account and an early trading launch were among the missteps that concerned team members at Binance.
decryptThe U.S. SEC and New York regulators have objected to Binance.US’s amended plan to acquire crypto lender Voyager.
TheBlockBinance US said customer assets are backed 1:1, and that the company is subject to regular audits.
cryptopotatoThe Binance CEO also said the industry allowed FTX to get too big before it started questioning its actions.
cryptopotatoThe exchange said all AMP trading will be halted on Aug. 15, adding that it “may resume at some point in the future."
CointelegraphThe new license from Puerto Rico further strengthens Binance CEO Changpeng Zhao's vision to be licensed everywhere.
Cointelegraph