Why A New BRICS Reserve Currency Would Favor Bitcoin
The Bitcoin Wars Part XVIII
Find other Bitcoin Wars articles here.
Over the past few weeks, the world has begun a lot of serious discussions about numerous new international currencies. The stakes are high, and the outcome affects everyone. I'm writing this article to help educate as many people as possible on the basics of these currency efforts, currency wars, and global twists. I also offer a theory as to why all of this tends toward a favorable outcome for Bitcoin.
Before continuing, note the similarity between the map above that I created of BRICS progression to this one below of nations in debt to China. We should probably just combine the two for the purposes of discussing what is being called the BRICS currency.
In 1999 I was standing in a (designated primary market maker) pit at the Chicago Board of Options Exchange trying to make the case to the traders around me that the explosion of the mortgage bond market was an intentional increase in dollar supply, and that the growth of the dollar supply added instability to the entire economy and to the Dot Com bubble in particular (a bubble which was just becoming an agreed upon "fact" among most traders). Though I had traded billions of dollars worth of bonds and even more in notional interest rate swaps, I was the new guy at the world's largest options trading firm (SIG), and at 21 years old, the lowest man on a totem pole that enjoyed gazing at itself in the mirror. I was quickly dubbed "the conspiracy theorist" of the group, meaning that the pit would be so boring that I would quit that job in a few months, go home, open my own account with half my savings, and trade the remaining months of the Dot Com bubble to 1600% profits. Some heads on the totem pole were not amused.
But I move on quickly and try to stay in tune with global economic shifts.
The dramatic expansion of the monetary supply only continued to get worse over the years. We long passed the necessity of an economic crisis. Food riots have begun around the world, and people burning their electricity bills in Europe won't make investment (several years overdue) in new energy sources any easier. It's going to get worse before it gets better. Meanwhile, half the world wants off the Titanic. There are men dressed as women piling into the lifeboats. It's not even subtle.
The BRICS Monetary Movement Emerges
Those of you wise enough to get your news outside of the legacy media may already be aware that a powerful group of nations is considering upending the global dollar apple cart. If you weren't aware of these rapidly shifting monetary machinations, it's time to shuffle your media.
In 2009, on the heels of the mortgage bond market collapse, the four nations of Brazil, Russia, India, and China (BRIC) met to discuss their common economic future once the Monetary/Currency Wars began. They were soon joined by South Africa to form the BRICS block, which certainly sounds like something you'd use to build a new house to store your wealth. In 2018, Russia dumped nearly all of its U.S. treasuries (and its invasion of Ukraine already advertised in Western media?) while China recently reduced its dollar reserves.
Those thinking that China is ready to take on global hegemonic status will be surprised. Sure, they soaked up a lot of trade, manufacturing, and dull-edge science jobs, but we can see the weakness of the Chinese economy in a combination of their flailing real estate markets, struggling currency, and defensive posturing with respect to food security. Even if China successfully navigates these challenges, it has serious water issues. And if you had any doubt about China's inability to participate in a modern economy, understand that Chinese investors are the world's number one target for financial Ponzi schemes. Who thought 1.4 billion people brutalized by communism could rise up into a functional understanding of market economics a mere 50 years after reopening their universities? Ask East Germans who it's going for them after reunification.
Four of the five BRICS nations are among the 10 largest in the world (including the two most populous, by far) which cover 26.7% of the world's land surface and 41.5% of the world's population. Maybe more this far into the experimental mass transfection campaign. But it doesn't stop there. In late June of this year, other nations stepped forward to apply for "membership" into this new economic union:
BRICS expansion has been discussed for a long time. It is significant that the last summit on June 24 in the BRICS Plus format was attended by such countries as Algeria, Argentina, Cambodia, Egypt, Fiji, Ethiopia, Indonesia, Iran, Kazakhstan, Malaysia, Senegal, Thailand and Uzbekistan.
At the same time, the fact that the first applications for membership were submitted by Argentina and Iran, which did not take part in the BRICS Plus meeting, does not seem accidental.
I added the bolded nations to the first map (orange), but I've also added some in yellow that are either obviously likely inclusions (nations invaded by the U.S. to preserve dollar dominance?) or specifically in the path of China's Belt and Road Initiative. But let's face it, I'm likely leaving out anywhere from a few to several dozen nations likely to join that network—particularly the ones that would fill in gaps among the red/orange/yellow BRICS road. The world is sick of being robbed and murdered by the dollar money printing regime. This includes a strict majority of the world's population and possibly half the inhabitable land or more by the time the shift is complete.
Now, there are very real questions as to whether or not the bankers and oligarchs who largely grew out of and favored the West are simply withdrawing from the old system and are already controlling and shaping the new Eastern-led system, leaving those pesky freedom-loving Westerners to beg or perish—or at least create a sort of sibling rivalry that forces everyone into line. I personally see that as likely, but that's a story for another day. That won't mean anything like an immediate end of the dollar or Western participation in global trade, obviously, but it is interesting to see Western financial media handling the question defensively.
Now, let's examine the math that bridges the story to Bitcoin…
Reserve Currency Math
For the purpose of this article, I'm mostly going to use round numbers to simplify some mathematical calculations. The perfect accuracy of the results is far less important than the Big Picture understanding.
I will assume the following: The dollar vs. Tina-D vs. Bitcoin
The current global banking reserves includes 70% dollars, but I will use 90% because most fiat currencies are unwillfully tied to the dollar.
Under the realignment, 55% will be in the dollar and 45% in the "This is not a Dollar" currency (henceforth Tina-D).
What about the euro?
What about it? Right now, the euro is a crappier dollar for now. Its success is fully tethered to the actual dollar. That's reality.
Haven't you wondered yet whether BREXIT was a sneaky controlled move by Britain's elites to quietly step away from the catastrophe that is the rest of the Eurozone while blaming it on those damned UK-Trumpists?
What does this mean in terms of Metcalf's law, assuming that the two economic spheres are not really one global(ist) system masquerading as two?
Metcalf's law tells us that the value of a network is in proportion to the square of the number of nodes (users). This is both an excellent law, and one that can be interpreted numerous ways (does node size matter?) for the purpose of actual calculations. I really don't care to get into the weeds with advanced wielders of weirder economic machinery for the moment. For my purposes, I compute a relative loss of 38.5% of value of the split monetary system. Since the two economic spheres will be somewhat permeable, the actual loss is not quite that bad, but we're still talking about trillions or tens of trillions of dollars in global network value vanishing.
Boom. Vanished. Like all the vaccine injury groups on Facebook. As if they never existed.
Where did that value go?
Just as a company can be more or less valuable depending on how it operates, a network can be more or less valuable. And splitting the global economy in two reduces optimal economic opportunities.
(Don't take that as a promotion of global-ism, which is more about how the global economy is run than whether or not markets connect to one another on the "money graph".)
The simplest explanation is that the bankers and oligarchs know that they make themselves richer (you being poor is mostly incidental, and simply requires a corresponding investment in management and propaganda) and force you off your land (with the help of governments, of course) by splitting the world economy in two.
If at some point, they want to sell their assets into money, they might re-inflate the value of money by bringing the world back together under one reserve currency, again. See how that works? They can devalue whatever wealth they're less invested in so that they can buy more of it during each cycle, cycle after cycle. But this cycle transition is the big cycle transition—we span two eras [should we survive]. So, the wealth consolidation is more massive than at any moment in human history, and by a lot.
Does it all (the past almost three years of plandemonium) make more sense, now?
Equation of Exchange Envelope Math
We've talked about Equation of Exchange math just a bit, previously. Now, let's apply it to a world in which nearly 40% of the demand for the dollar vanishes from the banking network—just *poof*.
The calculation is trickier than usual due to circumstances usually referred to as the Triffin Dilemma/Paradox, which I plan to write about at a later date. Think of it as the world's largest earthquake ready to happen as shear forces build up around the global economic fault line. Put simply, the dumping of dollars (largely treasury bonds, as Russia did, but any form will do) into the higher velocity dollar market is different from the usual printing of money due to the environmental change associated with currency velocity. If you understand money velocity basics, the following chart might give you indigestion.
You might not even understand these charts completely to wonder seriously if they represent the end of an era. If you do understand these charts, you might consider the possibility that the U.S. prepared for the inevitable dumping of dollars by printing trillions and trillions of new dollars ahead of that timeline. That printing sucked value out of banks of the BRICS nations, lowering the competition potential. It may have also created a soft(er)(ish) landing for the United States.
This part of the exercise is going to be harder than I thought before seeing that chart. Did your jaw drop? My jaw dropped. I knew this section would be a headache, but I'm four ibuprofen in before I've reached the point of doing any math.
Let's review the basic version of the Equation of Exchange:
For the moment, let us assume that expansion of the monetary supply is over—at least for now—in any big way. My reasoning is that the Biden administration is likely waiting around for euros to pour into dollars in hopes of buoying the DNC along with the strength of the dollar (and lower prices) ahead of elections. This is the real reason for the utterly absurd and otherwise functionally purposeless "Inflation Reduction Act".
Speaking of lower prices…when V goes down, the product of P and T goes down. Sure, T may go down (and probably will also as the East-West economies sort the cat's cradle supply line knots out), but not before prices deflate.
The Bitcoin Leap Forward
As the value of each dollar falls, a subset of the wealthy (and wealthy enough) will likely buy Bitcoin and its value will likely soar. In fact, the process of fleeing the dollar could be the beginning of a cascade that ignites what some people call "hyperbitcoinization". There is often debate over the mechanism by which hyperbitcoinization might occur, but follow this simulation from start to finish to see a positive feedback loop.
Note that this chart is about proportions. There is no reason why the technological factor of the economy cannot lead to growth, or that unproductive assets/accounts won't be ditched for Bitcoin (this is part of the thesis of hyperbitcoinization), so the next graph we see may dramatically underestimate the growth in value of one Bitcoin.
Note also that after the initial reserve currency split, the dollar and Tiny-D both bleed value while Bitcoin continually picks up steam. That's Gresham's law and Thier's law working hand-in-hand. While the value of each Tina-D rises momentarily (that's what happens when you shrug the banking kleptocracy off), it soon begins to drift downward. The process becomes a positive feedback loop until Bitcoin swallows up the global monetary system.
(At this point in the story, haters with no sense of nuance will point out that this simulation does not technically represent Gresham's and Thier's laws. But they represent the same forces in a world in which global transportation is relatively fungible, so why quibble?)
The graph above represents proportionality of the optimally connected and thus valuable monetary system. Absolute numbers are harder to achieve. I did not define the time intervals, T, because I really don't know how long this process might take. Two year intervals? Three year intervals?
Empirical Shifting Toward a Bitcoin Standard
Most people are likely unaware that oil companies and other commodity sellers have been experimenting with trading on blockchains for years. I have heard tell of top secret market projects in which traded securities are traded on the blockchain at mass scale. And while oil has already been tied to multiple blockchains, no blockchain is more secure than the Bitcoin blockchain, so Bitcoin is the natural Schelling point for such activity.
Here is where we are with the Russia-Europe energy crisis:
On Thursday, March 24, Pavel Zavalny, chairman of Russia’s State Duma Committee for Energy, announced payment terms for countries looking to purchase oil and gas from Russia. It is an extension of the Russian government’s earlier statement to “unfriendly countries,” (directed toward most European Union member states) saying that they should pay for their energy with rubles or gold.
The Bitcoin Magazine article goes on to ask, "Would Russia use Bitcoin to evade sanctions?"
The sanctions move comes a little too soon for the Russian government to deploy its digital ruble, the Bank of Russia’s central bank digital currency (CBDC). In fact, the Ministry of Finance admitted in October 2020 that the digital ruble would come under the Financial Action Task Force’s stringent anti-money laundering (AML) and combating the financing of terrorism (CFT) rules and suspicious activity reporting that other CBDCs will undergo. That closes up any chance of the digital ruble being used for bypassing the sanctions.
Meanwhile, there is some skepticism that the Russian government could use bitcoin as a payment workaround. Bitcoin may be pseudonymous (you can see identifiers on the blockchain but the real identities remain obscure), but there is sufficient information for an open-source intelligence (OSINT) analyst to connect the dots and prove that Russia is using bitcoin in a manner that violates the sanctions.
And yet, Bitcoin's first use case was for illicit trading. Technologists are clever, and there are ways to create wallets filled with Bitcoin that gets washed through networks well enough to make forensic chain analysis difficult. In fact, if the Bitcoin used gets traded back and forth in a network that doesn't care about the sanctions, evasion is quite feasible. At the very least, we should expect a Red Queen's race to ensue between those who intend to use Bitcoin privately and those trying to identify Bitcoin users. As with the entire industry of cryptography, the cost is mostly borne by those trying to crack the code. You can be certain that Bitcoiners around the world are paying attention, and perhaps participating in the process.
The Nilar: A Pan-African Currency Emerges
Over the course of writing this article, a major currency event took place.
African countries emerged as “independent” nation-states in a context of a debt-based fiat money system, the fiat dollar standard. Independent is in quotation marks because Africa’s countries’ independence is nominal. That is said with due respect and gratitude to all brave men and women who fought, bled, and died to end (direct) colonialism. Still, Africa remains under indirect colonization. One of the most crippling, and certainly the most shackling, forms of subjugation Africa is under is monetary colonialism.
The motivation is real.
Step 1: Admit That We Are Powerless
We (the citizens of the U.S., and probably most other RTE readers) are powerless over the drug that represents easy money. We are addicted to it like sugar or alcohol. The situation is unmanageable. We need to move forward. It won't be easy, at first. But the reward will be great for those who can handle the transition. This is going to be a spiritual experience.