Bitcoin is Donald Trump's plan B if he fails to persuade the BRICS to stop their revolt against the dollar.
The chessboard moves
Find the first part of this paper HERE.
Geopolitical tensions are reflected behind the scenes by the questioning of the international monetary system. The BRICS no longer want to finance the lifestyle of Americans by placing their reserves in Treasury bonds.
Two important factors must be taken into consideration to analyze this standoff:
The first, as we have said, is that the United States has become a debtor nation. This is observed through the current account deficit which began to widen in 1983 before becoming chronic with the rise of globalization in the 1990s.
America paid for these imports with debt financed by the foreign exchange reserves of exporting countries (~$8 trillion). Without this artificial demand, the dollar exchange rate would have fallen until the trade balance was rebalanced. This scenario could have avoided the dangerous deindustrialization of the country.
It's a problem that American politicians and voters are increasingly concerned about. But there is no miracle solution, apart from slashing public spending and imports via customs taxes.
That said, America's core supply chains are heavily dependent on imports. The American economy would be paralyzed and would experience monster inflation in the event of an all-out trade war. In other words, Donald Trump would do well to think twice before threatening a 100% tax on Chinese imports.
The tough Sino-Russian tango
The second relevant factor is that China finds itself in the same situation as the United States in the aftermath of World War II. It is the factory of the world. China's economy would undoubtedly survive the collapse of the dollar, but the US economic recession will not leave its own economy unscathed. Fewer exports to the United States mean less growth at home.
It remains in China's interest that the reduction of the American trade deficit is not brutal. Regardless, China has almost halved the dollar's share of its reserves over the past ten years. Beijing also does not hide its intention to buy its oil in yuan. Will the United States accept that Middle Eastern countries free themselves from the petrodollar and embrace the petroyuan?
The second relevant factor concerns the radical developments in the global economy since Russia's invasion of Ukraine in February 2022. This geopolitical upheaval seriously threatens the post-Bretton Woods system.
We are already witnessing the rise of alternative currencies in the settlement of bilateral trade. The most notable case is that of Russia, which trades exclusively in yuan and dollars with China, Iran and several other countries. Russian Finance Minister Anton Siluanov even declared at the end of December that bitcoin will be officially used for international payments from 2025.
Another unmistakable sign is that central banks are rushing into gold. This panic is the direct consequence of the Western decision to seize Russian foreign exchange reserves. The dollar and the euro are no longer considered reliable and non-politicized reserve currencies.
All these developments remain rather informal for the moment due to lack of knowing exactly what to replace the dollar and the SWIFT network with. There are indications that BRICS could launch a new currency, but this remains only rumor. The recent positioning of Russia and the United States in favor of bitcoin is a much more serious clue as to what will be the international currency of the third millennium.
Enter Bitcoin
If the hegemony of the dollar were to disappear, the standard of living of Americans would probably decrease by just a third. This downgrading will manifest itself in a depreciation of the dollar and therefore an increase in the prices of imported goods and services. The United States could face serious social unrest if this adjustment were to be too rapid.
Washington and Beijing have an interest in a smooth monetary transition. However, despite what some free trade advocates would like to believe, trade imbalances are a problem as old as human history and often ending in war. The current geopolitical context is witness to this.
There is an urgent need to trade on a level playing field again to prevent trade imbalances from escalating into war. Gold is a good store of value, but it cannot serve as a payment network. It needs to be backed by a fiat currency. This is why bitcoin has been on the rise lately. It is a much better store of value than gold while at the same time being a two-in-one payment network.
It seems that Donald Trump has understood that the stateless bitcoin is the next international currency in power and that accumulating it before everyone else would allow him to take advantage of its appreciation to erase part of the American debt to the rest of the world (~8 000 billion) and possibly offer respite to the greenback.
This is an attractive fallback solution if the BRICS continue to distance themselves from the dollar. Especially since the club has just welcomed nine new countries. Together they represent half of the world's population and 41% of GDP at purchasing power parity.
What seemed like a sweet dream two years ago is becoming reality at dizzying speed. Bitcoin can save us from a world war by allowing Americans to save face.
Don’t miss our article: “Bitcoin and the end of gold”
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