Reserve Currency Status
Brainard’s speech didn’t address recent concerns regarding the reserve currency status concerns of the US dollar or China’s current lead in the CBDC race, which could advance its national interests. The reserve currency status is among others determined by the resilience of a country’s payment system, depth and trust in the well-functioning of the capital markets and exchanges, appeal to and innovation acumen of its tech industry and financial market infrastructure, international thought leadership, lead into climate change solutions and the global military might and power base, which reinforces adoption of a currency. (Customers pay for oil in the currency of the nation which offers regime protection at the oil fields. Asians and Europeans move every month out of their home currency in favor of the US Dollar to pay for their imported oil bill). Global adoption can also be ensured if censorship or control concerns, linked to the use of the CBDC, can be substantially mitigated.
Referring to innovation acumen and climate change solutions, could the central bank digital currency project incorporate scientific data observations regarding climate change triggering terrestrial and atmospheric trends? Could TRACE, a consortium tracking greenhouse gas emissions 24/7 by satellite, foster a balance between monetary policy and a thriving planet and be made part of this initiative? Could monetary policy be framed incorporating observations from those data trends, with support from climate scientists? Could digital currency be directed at ZIP code levels, impacted by climate change calamities? From a supervisory perspective, could solvency weightings for banks’ asset exposure be dynamically set as a function of the data observations and the remaining finite carbon budget? Could bank stress testing scenarios under CCAR (Comprehensive Capital Assessment and Review), undertaken to assess the banks’ adequacy of solvency levels, be articulated as an extended continuum of such climate change observations?
Innovative monetary design ingenuity linked to climate change solutions can only solidify the continued appeal in the US dollar as the global reserve currency.
The Current Five-Headed Crisis
The current crisis is five-headed in nature, characterized by a
- public health crisis, a
- financial crisis, a
- social justice crisis, a
- climate change crisis and a
- trust crisis in institutions and international trade.
Could a central bank digital crypto currency address each of the crisis challenges? How could financial inclusion offer a dent into the social injustice paradigm? How could distributed, decentralized and crypto-graphed data sharing enhance trust in institutions? How could the Central Bank consensus protocol be made more energy efficient than the private crypto-currency protocols? How could smart contract design introduce a central bank digital currency-based reward economy?
Instead of offering mere helicopter money, could compensation be offered in exchange for contributions to the regenerative (climate change) and caring economy (childcare and parental care at home)? How could blockchain supported supply chain data trace the global export and import flows in relationship to FX trades and exchange rates? How could market intervention and/or sustainable change to circular economic paradigms be steered on the back of those data?
Need For A New Anchor Currency
The debasing of currencies by the most important central banks ($6 Trillion of QE in the US alone), the arising currency tensions in the emerging markets (e.g. Lebanon, Turkey, South-Africa,….) and the COVID-19 default impact on total debt outstanding of $258 trillion per Q1 2020 will only accelerate the need and call for debt rescheduling and ensuing FX rate mechanism interventions. If gold is no longer an option, could a central bank issued stablecoin, finite in supply, become a store of value or new anchor currency to manage the restructurings and market support activities?
Brainard’s speech makes reference to a new initiative with the Bank of International Settlement’s Innovation Hub. This initiative could provide a useful avenue to design such Central Bank stablecoin.
The collateral base of the stablecoin could consist of a reserve of natural capital assets, consisting of
- 50% of land and forests,
- 35% In renewable energy initiatives, and
- 10% in the top 100 most compliant ESG companies and
- 5% in biotech research.
The collateral base would be managed dynamically, but would also benefit from monetary policy and prudential supervisory decisions aimed at regenerating the natural capital base on earth and replenishing its finite carbon reserve. The supply could be managed, within a range, as a function of the TRACE observations.
On the occasion of Bretton Woods II, the new Central Bank Stablecoin could be introduced and offered, akin to the gold standard, as a fixed rate against all other fiat currencies, including the US dollar.
Milton Friedman once observed, only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. Then, ideas once dismissed as unrealistic or impossible might just become inevitable.
Submitted by Michael Every of Rabobank
- The Eurodollar system is a critical but often misunderstood driver of global financial markets: its importance cannot be understated.
- Its origins are shrouded in mystery and intrigue; its operations are invisible to most; and yet it controls us in many ways. We will attempt to enlighten readers on what it is and what it means.
- However, it is also a system under huge structural pressures – and as such we may be about to experience a profound paradigm shift with key implications for markets, economies, and geopolitics.
- Recent Fed actions on swap lines and repo facilities only underline this fact rather than reducing its likelihood
What is The Matrix?
A new world-class golf course in an Asian country financed with a USD bank loan. A Mexican property developer buying a hotel in USD. A European pension company wanting to hold USD assets and swapping borrowed EUR to do so. An African retailer importing Chinese-made toys for sale, paying its invoice in USD.
All of these are small examples of the multi-faceted global Eurodollar market. Like The Matrix, it is all around us, and connects us. Also just like The Matrix, most are unaware of its existence even as it defines the parameters we operate within. As we shall explore in this special report, it is additionally a Matrix that encompasses an implicit power struggle that only those who grasp its true nature are cognizant of.
Moreover, at present this Matrix and its Architect face a huge, perhaps existential, challenge.
Yes, it has overcome similar crises before…but it might be that the Novel (or should we say ‘Neo’?) Coronavirus is The One.
So, here is the key question to start with: What is the Eurodollar system?
The Eurodollar system is a critical but often misunderstood driver of global financial markets: its importance cannot be understated. While most market participants are aware of its presence to some degree, not many grasp the extent to which it impacts on markets, economies,…and geopolitics – indeed, the latter is particularly underestimated.
Yet before we go down that particular rabbit hole, let’s start with the basics. In its simplest form, a Eurodollar is an unsecured USD deposit held outside of the US. They are not under the US’ legal jurisdiction, nor are they subject to US rules and regulations.
To avoid any potential confusion, the term Eurodollar came into being long before the Euro currency, and the “euro” has nothing to do with Europe. In this context it is used in the same vein as Eurobonds, which are also not EUR denominated bonds, but rather debt issued in a different currency to the company of that issuing. For example, a Samurai bond–that is to say a bond issued in JPY by a nonJapanese issuer–is also a type of Eurobond.
As with Eurobonds, eurocurrencies can reflect many different underlying real currencies. In fact, one could talk about a Euroyen, for JPY, or even a Euroeuro, for EUR. Yet the Eurodollar dwarfs them: we shall show the scale shortly.
So how did the Eurodollar system come to be, and how has it grown into the behemoth it is today? Like all global systems, there are many conspiracy theories and fantastical claims that surround the birth of the Eurodollar market. While some of these stories may have a grain of truth, we will try and stick to the known facts.
A number of parallel events occurred in the late 1950s that led to the Eurodollar’s creation – and the likely suspects sound like the cast of a spy novel. The Eurodollar market began to emerge after WW2, when US Dollars held outside of the US began to increase as the US consumed more and more goods from overseas. Some also cite the role of the Marshall Plan, where the US transferred over USD12bn (USD132bn equivalent now) to Western Europe to help them rebuild and fight the appeal of Soviet communism.
Of course, these were just USD outside of the US and not Eurodollars. Where the plot thickens is that, increasingly, the foreign recipients of USD became concerned that the US might use its own currency as a power play. As the Cold War bit, Communist countries became particularly concerned about the safety of their USD held with US banks. After all, the US had used its financial power for geopolitical gains when in 1956, in response to the British invading Egypt during the Suez Crisis, it had threatened to intensify the pressure on GBP’s peg to USD under Bretton Woods: this had forced the British into a humiliating withdrawal and an acceptance that their status of Great Power was not compatible with their reduced economic and financial circumstances.
With rising fears that the US might freeze the Soviet Union’s USD holdings, action was taken: in 1957, the USSR moved their USD holdings to a bank in London, creating the first Eurodollar deposit and seeding our current UScentric global financial system – by a country opposed to the US in particular and capitalism in general.
There are also alternative origin stories. Some claim the first Eurodollar deposit was made during the Korean War with China moving USD to a Parisian bank.
Meanwhile, the Eurodollar market spawned a widely-known financial instrument, the London Inter Bank Offer Rate, or LIBOR. Indeed, LIBOR is an offshore USD interest rate which emerged in the 1960s as those that borrowed Eurodollars needed a reference rate for larger loans that might need to be syndicated. Unlike today, however, LIBOR was an average of offered lending rates, hence the name, and was not based on actual transactions as the first tier of the LIBOR submission waterfall is today.
Dozer and Tank
So how large is the Eurodollar market today? Like the Matrix – vast. As with the origins of the Eurodollar system, itself nothing is transparent. However, we have tried to estimate an indicative total using Bank for International Settlements (BIS) data for:
- On-balance sheet USD liabilities held by non-US banks;
- USD Credit commitments, guarantees extended, and derivatives contracts of non-US banks (C, G, D);
- USD debt liabilities of non-US non-financial corporations;
- Over-the-Counter (OTC) USD derivative claims of non-US non-financial corporations; and
- Global goods imports in USD excluding those of the US and intra-Eurozone trade.
The results are as shown below as of end-2018: USD57 trillion, nearly three times the size of the US economy before it was hit by the COVID-19 virus. Even if this measure is not complete, it underlines the scale of the market.
It also shows its vast power in that this is an equally large structural global demand for USD. Every import, bond, loan, credit guarantee, or derivate needs to be settled in USD.
Indeed, fractional reserve banking means that an initial Eurodollar can be multiplied up (e.g., Eurodollar 100m can be used as the base for a larger Eurodollar loan, and leverage increased further). Yet non-US entities are NOT able to conjure up USD on demand when needed because they don’t have a central bank behind them which can produce USD by fiat, which only the Federal Reserve can.
This power to create the USD that everyone else transacts and trades in is an essential point to grasp on the Eurodollar – which is ironically also why it was created in the first place!
Given the colourful history, ubiquitous nature, and critical importance of the Eurodollar market, a second question then arises: Why don’t people know about The Matrix?
The answer is easy: because once one is aware of it, one immediately wishes to have taken the Blue Pill instead.
Consider what the logic of the Eurodollar system implies. Global financial markets and the global economy rely on the common standard of the USD for pricing, accounting, trading, and deal making. Imagine a world with a hundred different currencies – or even a dozen: it would be hugely problematic to manage, and would not allow anywhere near the level of integration we currently enjoy.
However, at root the Eurodollar system is based on using the national currency of just one country, the US, as the global reserve currency. This means the world is beholden to a currency that it cannot create as needed.
When a crisis hits, as at present, everyone in the Eurodollar system suddenly realizes they have no ability to create fiat USD and must rely on national USD FX reserves and/or Fed swap lines that allow them to swap local currency for USD for a period. This obviously grants the US enormous power and privilege.
The world is also beholden to US monetary policy cycles rather than local ones: higher US rates and/or a stronger USD are ruinous for countries that have few direct economic or financial links with the US. Yet the US Federal Reserve generally shows very little interest in global economic conditions – though that is starting to change, as we will show shortly.
A second problem is that the flow of USD from the US to the rest of the world needs to be sufficient to meet the inbuilt demand for trade and other transactions. Yet the US is a relatively smaller slice of the global economy with each passing year. Even so, it must keep USD flowing out or else a global Eurodollar liquidity crisis will inevitably occur.
That means that either the US must run large capital account deficits, lending to the rest of the world; or large current account deficits, spending instead.
Obviously, the US has been running the latter for many decades, and in many ways benefits from it. It pays for goods and services from the rest of the world in USD debt that it can just create. As such it can also run huge publicor private-sector deficits – arguably even with the multitrillion USD fiscal deficits we are about to see.
However, there is a cost involved for the US. Running a persistent current-account deficit implies a net outflow of industry, manufacturing and related jobs. The US has obviously experienced this for a generation, and it has led to both structural inequality and, more recently, a backlash of political populism wanting to Make America Great Again.
Indeed, if one understands the structure of the Eurodollar system one can see that it faces the Triffin Paradox. This was an argument first made by Robert Triffin in 1959 when he correctly predicted that any country forced to adopt the role of global reserve currency would also be forced to run ever-larger currency outflows to fuel foreign appetite – eventually leading to the breakdown of the system as the cost became too much to bear.
Moreover, there is another systemic weakness at play: realpolitik. Atrophying of industry undermines the supply chains needed for the defence sector, with critical national security implications. The US is already close to losing the ability to manufacture the wide range of products its powerful armed forces require on scale and at speed: yet without military supremacy the US cannot long maintain its multi-dimensional global power, which also stands behind the USD and the Eurodollar system.
This implies the US needs to adopt (military-) industrial policy and a more protectionist stance to maintain its physical power – but that could limit the flow of USD into the global economy via trade. Again, the Eurodollar system, like the early utopian version of the Matrix, seems to contain the seeds of its own destruction.
Indeed, look at the Eurodollar logically over the long term and there are only three ways such a system can ultimately resolve itself:
- The US walks away from the USD reserve currency burden, as Triffin said, or others lose faith in it to stand behind the deficits it needs to run to keep USD flowing appropriately;
- The US Federal Reserve takes over the global financial system little by little and/or in bursts; or
- The global financial system fragments as the US asserts primacy over parts of it, leaving the rest to make their own arrangements.
See the Eurodollar system like this, and it was always when and not if a systemic crisis occurs – which is why people prefer not focus on it all even when it matters so much. Yet arguably this underlying geopolitical dynamic is playing out during our present virus-prompted global financial instability.
Down the rabbit hole
But back to the rabbit hole that is our present situation. While the Eurodollar market is enormous one also needs to look at how many USD are circulating around the world outside the US that can service it if needed. In this regard we will look specifically at global USD FX reserves.
It’s true we could also include US cash holdings in the offshore private sector. Given that US banknotes cannot be tracked no firm data are available, but estimates range from 40% – 72% of total USD cash actually circulates outside the country. This potentially totals hundreds of billions of USD that de facto operate as Eurodollars. However, given it is an unknown total, and also largely sequestered in questionable cash-based activities, and hence are hopefully outside the banking system, we prefer to stick with centralbank FX reserves.
Looking at the ratio of Eurodollar liabilities to global USD FX reserve assets, the picture today is actually healthier than it was a few years ago.
Indeed, while the Eurodollar market size has remained relatively constant in recent years, largely as banks have been slow to expand their balance sheets, the level of global USD FX reserves has risen from USD1.9 trillion to over USD6.5 trillion. As such, the ratio of structural global USD demand to that of USD supply has actually declined from near 22 during the global financial crisis to around 9.
Yet the current market is clearly seeing major Eurodollar stresses – verging on panic.
Fundamentally, the Eurodollar system is always short USD, and any loss of confidence sees everyone scramble to access them at once – in effect causing an invisible international bank run. Indeed, the Eurodollar market only works when it is a constant case of “You-Roll-Over Dollar”.
Unfortunately, COVID-19 and its huge economic damage and uncertainty mean that global confidence has been smashed, and our Eurodollar Matrix risks buckling as a result.
The wild gyrations recently experienced in even major global FX crosses speak to that point, to say nothing of the swings seen in more volatile currencies such as AUD, and in EM bellwethers such as MXN and ZAR. FX basis swaps and LIBOR vs. Fed Funds (so offshore vs. onshore USD borrowing rates) say the same thing. Unsurprisingly, the IMF are seeing a wide range of countries turning to them for emergency USD loans.
The Fed has, of course, stepped up. It has reduced the cost of accessing existing USD swap lines–where USD are exchanged for other currencies for a period of time–for the Bank of Canada, Bank of England, European Central Bank, and Swiss National Bank; and another nine countries were given access to Fed swap lines with Australia, Brazil, South Korea, Mexico, Singapore, and Sweden all able to tap up to USD60bn, and USD30bn available to Denmark, Norway, and New Zealand. This alleviates some pressure for some markets – but is a drop in the ocean compared to the level of Eurodollar liabilities.
The Fed has also introduced a new FIMA repo facility. Essentially this allows any central bank, including emerging markets, to swap their US Treasury holdings for USD, which can then be made available to local financial institutions. To put it bluntly, this repo facility is like a swap line but with a country whose currency you don’t trust.
Allowing a country to swap its Treasuries for USD can alleviate some of the immediate stress on Eurodollars, but when the swap needs to be reversed the drain on reserves will still be there. Moreover, Eurodollar market participants will now not be able to see if FX reserves are declining in a potential crisis country. Ironically, that is likely to see less, not more, willingness to extend Eurodollar credit as a result.
You have two choices, Neo
Yet despite all the Fed’s actions so far, USD keeps going up vs. EM FX. Again, this is as clear an example as one could ask for of structural underlying Eurodollar demand.
Indeed, we arguably need to see even more steps taken by the Fed – and soon. To underline the scale of the crisis we currently face in the Eurodollar system, the BIS concluded at the end of a recent publication on the matter:
“…today’s crisis differs from the 2008 GFC, and requires policies that reach beyond the banking sector to final users. These businesses, particularly those enmeshed in global supply chains, are in constant need of working capital, much of it in dollars. Preserving the flow of payments along these chains is essential if we are to avoid further economic meltdown.
Channeling dollars to non-banks is not straightforward. Allowing non-banks to transact with the central bank is one option, but there are attendant difficulties, both in principle and in practice. Other options include policies that encourage banks to fill the void left by market based finance, for example funding for lending schemes that extend dollars to non-banks indirectly via banks.”
In other words, the BIS is making clear that somebody (i.e., the Fed) must ensure that Eurodollars are made available on massive scale, not just to foreign central banks, but right down global USD supply chains. As they note, there are many practical issues associated with doing that – and huge downsides if we do not do so. Yet they overlook that there are huge geopolitical problems linked to this step too.
Notably, if the Fed does so then we move rapidly towards logical end-game #2 of the three possible Eurodollar outcomes we have listed previously, where the Fed de facto takes over the global financial system. Yet if the Fed does not do so then we move towards end-game #3, a partial Eurodollar collapse.
Of course, the easy thing to assume is that the Fed will step up as it has always shown a belated willingness before, and a more proactive stance of late. Indeed, as the BIS shows in other research, the Fed stepped up not just during the Global Financial Crisis, but all the way back to the Eurodollar market of the 1960s, where swap lines were readily made available on large scale in order to try to reduce periodic volatility.
However, the scale of what we are talking about here is an entirely new dimension: potentially tens of trillions of USD, and not just to other central banks, or to banks, but to a panoply of real economy firms all around the Eurodollar universe.
As importantly, this assumes that the Fed, which is based in the US, wants to save all these foreign firms. Yet does the Fed want to help Chinese firms, for example? It may traditionally be focused narrowly on smoothly-functioning financial markets, but is that true of a White House that openly sees China as a “strategic rival”, which wishes to onshore industry from it, and which has more interest in having a politically-compliant, not independent Fed? Please think back to the origins of Eurodollars – or look at how the US squeezed its WW2 ally UK during the 1956 Suez Crisis, or how it is using the USD financial system vs. Iran today.
Equally, this assumes that all foreign governments and central banks will want to see the US and USD/Eurodollar cement their global financial primacy further. Yes, Fed support will help alleviate this current economic and brewing financial crisis – but the shift of real power afterwards would be a Rubicon that we have crossed.
Specifically, would China really be happy to see its hopes of CNY gaining a larger global role washed away in a flood of fresh, addictive Eurodollar liquidity, meaning that it is more deeply beholden to the US central bank? Again, please think back to the origins of Eurodollars, to Suez, and to how Iran is being treated – because Beijing will. China would be fully aware that a Fed bailout could easily come with political strings attached, if not immediately and directly, then eventually and indirectly. But they would be there all the same.
One cannot ignore or underplay this power struggle that lies within the heart of the Eurodollar Matrix.
I know you’re out thereSo, considering those systemic pressures, let’s look at where Eurodollar pressures are building most now. We will use World Bank projections for short-term USD financing plus concomitant USD current-account deficit requirements vs. specifically USD FX reserves, not general FX reserves accounted in USD, as calculated by looking at national USD reserves and adjusting for the USD’s share of the total global FX reserves basket (57% in 2018, for example). In some cases this will bias national results up or down, but these are in any case only indicative.
How to read these data about where the Eurodollar stresses lie in Table 1? Firstly, in terms of scale, Eurodollar problems lie with China, the UK, Japan, Hong Kong, the Cayman Islands, Singapore, Canada, and South Korea, Germany and France. Total short-term USD demand in the economies listed is USD28 trillion – around 130% of USD GDP. The size of liabilities the Fed would potentially have to cover in China is enormous at over USD3.4 trillion – should that prove politically acceptable to either side.
Outside of China, and most so in the Cayman Islands and the UK, Eurodollar claims are largely in the financial sector and fall on banks and shadow banks such as insurance companies and pension funds. This is obviously a clearer line of attack/defence for the Fed. Yet it still makes these economies vulnerable to swings in Eurodollar confidence – and reliant on the Fed.
Second, most developed countries apart from Switzerland have opted to hold almost no USD reserves at all. Their approach is that they are also reserve currencies, long-standing US allies, and so assume the Fed will always be willing to treat them as such with swap lines when needed. That assumption may be correct – but it comes with a geopolitical power-hierarchy price tag. (Think yet again of how Eurodollars started and the 1956 Suez Crisis ended.)
Third, most developing countries still do not hold enough USD for periods of Eurodollar liquidity stress, despite the painful lessons learned in 1997-98 and 2008-09. The only exception is Saudi Arabia, whose currency is pegged to the USD, although Taiwan, and Russia hold USD close to what would be required in an emergency. Despite years of FX reserve accumulation, at the cost of domestic consumption and a huge US trade deficit, Indonesia, Mexico, Malaysia, and Turkey are all still vulnerable to Eurodollar funding pressures. In short, there is an argument to save yet more USD – which will increase Eurodollar demand further.
We all become Agent Smith?
In short, the extent of demand for USD outside of the US is clear – and so far the Fed is responding. It has continued to expand its balance sheet to provide liquidity to the markets, and it has never done so at this pace before (Figure 5). In fact, in just a month the Fed has expanded its balance sheet by nearly 50% of the previous expansion observed during all three rounds of QE implemented after the Global Financial Crisis. Essentially we have seen nearly five years of QE1-3 in five weeks! And yet it isn’t enough.
Moreover, things are getting worse, not better. The global economic impact of COVID-19 is only beginning but one thing is abundantly clear – global trade in goods and services is going to be hit very, very hard, and that US imports are going to tumble. This threatens one of the main USD liquidity channels into the Eurodollar system.
Table 2 above also underlines looming EM Eurodollar stress-points in terms of import cover, which will fall sharply as USD earnings collapse, and external debt service. The further to the left we see the latest point for import cover, and the further to the right we see it for external debt, the greater the potential problems ahead.
As such, the Fed is likely to find it needs to cover trillions more in Eurodollar liabilities (of what underlying quality?) coming due in the real global, not financial economy – which is exactly what the BIS are warning about. Yes, we are seeing such radical steps being taken by central banks in some Western countries, including in the US – but internationally too? Are we all to become ‘Agent Smith’?
If the Fed is to step up to this challenge and expand its balance sheet even further/faster, then the US economy will massively expand its external deficit to mirror it.
That is already happening. What was a USD1 trillion fiscal deficit before COVID-19, to the dismay of some, has expanded to USD3.2 trillion via a virus-fighting package: and when tax revenues collapse, it will be far larger. Add a further USD600bn phase three stimulus, and talk of a USD2 trillion phase four infrastructure program to try to jumpstart growth rather than just fight virus fires, and potentially we are talking about a fiscal deficit in the range of 20-25% of GDP. As we argued recently, that is a peak-WW2 level as this is also a world war of sorts.
On one hand, the Eurodollar market will happily snap up those trillions US Treasuries/USD – at least those they can access, because the Fed will be buying them too via QE. Indeed, for now bond yields are not rising and USD still is.
However, such fiscal action will prompt questions on how much the USD can be ‘debased’ before, like Agent Smith, it over-reaches and then implodes or explodes – the first of the logical endpoints for the Eurodollar system, if you recall. (Of course, other currencies are doing it too.)
Is Neo The One?
In conclusion, the origins of the Eurodollar Matrix are shrouded in mystery and intrigue – and yet are worth knowing. Its operations are invisible to most but control us in many ways – so are worth understanding. Moreover, it is a system under huge structural pressure – which we must now recognise.
It’s easy to ignore all these issues and just hope the Eurodollar Matrix remains the “You-Roll-Dollar” market – but can that be true indefinitely based just on one’s belief?
Is the Neo Coronavirus ‘The One’ that breaks it?
ORACLE: “Well now, ain’t this a surprise?”
ARCHITECT: “You’ve played a very dangerous game.”
ORACLE: “Change always is.”
ARCHITECT: “And how long do you think this peace is going to last?”
ORACLE: “As long as it can….What about the others?”
ARCHITECT: “What others?”
ORACLE: “The ones that want out.”
ARCHITECT: “Obviously they will be freed.”
Non-nativeenglish announement of Russian/Chinese alternative to US Dollar
China is largest oil importer
Attempt to price Oil in alternate currency
Displace: Brent-oil futures & North Sea
Qianhai, ICBC bank Qianhai Storage Center
Alex Saunders of Nuggets News shares his thoughts on what to expect from central banks on the road ahead from dropping rates, implementing quantitative easing and the applying modern monetary theory. Explaining why this is important to understand when investing in hedge assets like Gold and Bitcoin.
Alex Saunders is one of Australia’s leading blockchain educators and founder of Nuggets News.
Filmed at the Gold and Alternative Investments Conference 2019, Saturday, October 26, 2019.
Transcript00:00how we’re going guys that’s working so00:01hands up who owns gold and hands up who00:06owns Bitcoin it’s bit more even than I00:09thought so yeah I’m definitely a big fan00:11of both and today I’m going to try and00:13give you a rundown of bitcoins history00:15and how it’s been affected by monetary00:17policy where I think that is going as we00:20head into the future and Bitcoin is very00:23hard to understand so I’m going to tie00:25together all these concepts as best I00:27can for you in under half an hour and00:29just a bit of an intro I run Nuggets00:32news I’ve been in cryptocurrency since00:342012 I was actually a pharmacist by00:37trade and I’ll talk about how my story00:40came about so these days where00:43Australia’s leading provider of free and00:45premium education with a focus on00:48Bitcoin other cryptocurrencies as well00:50as the importance of gold and protecting00:53your wealth a bit of well-rounded00:55financial education so Bitcoin often01:00gets called you know digital gold01:01internet money and I think these terms01:03maybe oversimplify it and don’t do it01:06justice so I’m going to talk about all01:07the different things that it is bringing01:09together and why it is so important so01:12another focus of my talk today is you01:13know what have we learned from the GFC01:15it’s ten years on now and Bitcoin01:18actually came about from the GFC my01:23journey begins around that time when I’d01:25been studying pharmacy but investing it01:27always been my passion and when the GFC01:30unfolded like a lot of you I’m sure you01:32want to know what happened and there’s01:33some fantastic documentaries out there01:35and you learn about how you know the01:37banks effectively caused all this01:39trouble and then got bailed out and01:41satoshi the creator of Bitcoin embedded01:44this message about the the bailouts for01:47the banks in the Genesis block of01:49Bitcoin so it’s very much one of the01:51messages that he was trying to portray01:53about bitcoins mission going forward so01:56since the the GFC I guess the message01:59from central banks and their02:01relationship with government has always02:02been around you know trust us02:04we’ve got these levers of printing money02:06and interest rates and we can steer the02:08economy and they really ramped up their02:11production of of money as most02:13in this room probably know to encourage02:15banks to lend out and get the economy02:17going that I’m gonna talk about how that02:19hasn’t really unfolded and what we saw02:21around this time was people becoming02:25aware of these issues and push back02:27against what was happening so Occupy02:29Wall Street was pretty prominent at the02:31time he kind of died down a little bit02:33but this was when Bitcoin was starting02:35to get a little bit of traction now like02:38a lot of people when you learn about02:39what he’s going on in the monetary02:40system you know I’m preaching to the02:42converted here at a gold conference and02:44I know personally I wanted to go out and02:45buy some some gold and silver and one of02:48the first bars I bought it wasn’t a02:50common I commonly made bar and I was02:52sort of thinking you know how I know02:53that this is legit so I guess that’s02:54probably one of the the aspects of02:57Bitcoin and auditing and even gold that02:59I believe blockchain can help Gold’s03:01case as well but I’m very much an03:02advocate of gold and silver and I still03:05own those today another thing that a lot03:08of gold bugs will tell you is the price03:10manipulation so depending on what degree03:12you believe in that I certainly I can03:14understand the case for you know these03:16futures markets and ETFs and03:18rehypothecation and what what is the03:20real gold underlying that and it’s03:23something that I hope doesn’t creep into03:24the Bitcoin world too much because we03:27don’t want that money that once exposure03:29to that asset being pushed into these03:31things that aren’t backed by real03:32Bitcoin or by real gold so you see a lot03:37of these different slides around03:39bitcoins properties and you know it’s03:42it’s all looking pretty good according03:43to that but I’m certainly not here to03:45tell you that Bitcoin is a replacement03:46for gold at all there’s some things that03:48it does are better and some things that03:50it doesn’t do better that track record03:52and the history of gold obviously is03:53very hard to compete with but it’s all03:55the properties of Bitcoin that give it’s03:58you know good credence to be a good04:00money the future money the next04:02evolution of money so for the first time04:06ever we had a way so I guess stick it to04:09central banks and governments and say04:10well you know if you’re going to try and04:12manipulate gold and ETFs and I know most04:15people instrument robably fans of04:16holding the real thing for the first04:17time ever we’ve got a way to hold your04:21assets outside the system and become04:22your own bank and this was a famous04:24photo that you probably saw with someone04:26to buy Bitcoin behind janet yellen air04:29so what is Bitcoin what are the04:32properties that make it a good money04:34well the first things you learn is about04:36this finite supplier and how the04:38inflation rate halves every four years04:40so you can see there on the curve we’re04:43at a very important point well in May04:45next year we step down from 4% inflation04:47to 2% and then again four years later04:50down to 1% and at that time Bitcoin04:53becomes more scarce than that inflation04:55that all central banks are targeting of04:57two and three percent the new production04:59of gold is about one or two percent so05:01Bitcoin will become you know more scarce05:03in terms of the new coins created and05:05that’s very attractive in a world where05:07money printing is running right another05:10thing that you’ll love about Bitcoin05:12once you learn about is this05:13decentralized nature so what does that05:15mean well anyone can download the05:17Bitcoin blockchain running on their05:19computer help support the network you05:21can download a wallet and you become05:23part of the network you can send Bitcoin05:25to anyone else there’s no one company05:27that can be targeted or shut down05:29there’s there’s nodes computers all over05:31the world that run this network and it’s05:33literally impossible to stop unless you05:35plan on showing down the entire Internet05:38so around 2013 we saw the Cypress05:42bailing so heads up who knows the story05:44there so this is the first time that05:47we’d seen governments and banks say well05:49we’re not we’re not going to bail the05:50banks out and give them money you’re05:51gonna have to bail your customers in to05:53shore up your reserves and they got what05:56they call a haircut where the customers05:57lost a percentage of all money in their05:59accounts and we saw a lot of protests at06:01the time the ATMs shut the bank shut in06:04Cyprus and Bitcoin ran from a hundred06:06dollars to over a thousand dollars as06:08people in Cyprus saw that as the best06:10way to protect their wealth and have06:12access to their money so this was the06:14first I guess bubble and Bitcoin does06:16follow these these cycles these mini06:18bubbles where we have a very scarce06:20asset it’s thinly traded so when06:22everyone tries to borrow we get these06:23big run ups in price and that leads to06:25euphoria and speculation and then we06:27have these these crashes and like06:29anything it overshoots to the downside06:31and we have panic so I’ve been through06:32seven of these cycles now since 2012 and06:35you know every time people who say whoo06:38bitcoins dead he’d ends up going up a06:39thousand06:40sent the following year throughout this06:43time and despite this volatility if you06:45look at all the network stats for06:46Bitcoin and we can pull a lot of data06:48from that because the blockchain is06:50transparent and anyone can see what’s06:51going on the growth in the network was06:54very constant so bitcoins price06:56unfortunately isn’t just going to06:58steadily increase and you know REITs07:01these large market caps in the trillions07:03where I believe it’s going we’re going07:04to have those cycles despite the actual07:07growth underlying it being very very07:09consistent so most of you’ve probably07:12seen this slide about the u.s. debt07:14clock it’s probably going up a few07:15billion since I took this screenshot07:17yesterday and it’s these are the reasons07:20why bitcoin is so important because of07:23that finite nature that low inflation07:25rate that I spoke about there’s also an07:27Australian debt clock if you want to07:29google that and you can see how quickly07:31these liabilities and promises the07:34government is saying they’re gonna pay07:35us all are unfolding so I’ll put my07:38pharmacists hat back on07:40and once data like to tell people is07:41that for the first time in history07:42there’s more adult diapers than baby07:44diapers we’ve got a generation of baby07:47boomers every day 10,000 baby boomers07:49retire in the US and they’ve been07:51promised these pensions and this07:52Medicare and as you saw in the previous07:54slide that’s hundreds of trillions of07:56dollars the US and other countries are07:58promising at a time when they’re running08:00huge deficits there’s no way that this08:02can be funded and every dollar of debt08:04represents something that needs to be08:06paid out in the future so we know that08:08the money supply is going to have to08:09increase into the hundreds of trillions08:10of dollars and that is going to be very08:13inflationary in all countries around the08:15world at the same time we’ve got a08:18generation of young people such as08:20myself that have grown up with the08:21internet and devices and every time a08:23new technology comes along the adoption08:26rate speeds up so smart phones and08:28Facebook took over the world you know in08:30a number of years only a couple of years08:32compared to previous technologies and08:34communication things spread like08:36wildfire these days and when I see those08:39charts of the Bitcoin and people saying08:40it’s dead it’s a bubble all of those08:42little bumps on the road when you zoom08:44out just another adoption curve in my08:46mind and we’re gonna head to a 80 or 9008:48percent penetration and that doesn’t08:50mean the Bitcoin becomes a world08:51currency or anything like that it just08:53means that08:54every person he’s going to use it to08:55some degree whether it’s just on08:56holidays you know to some degree I08:59believe Bitcoin is going to be used by09:00lots of different people in different09:02capacities now when people tell me that09:05no one spends Bitcoin no one uses it a09:07little company in Australia called09:08living room with Satoshi you have09:10allowed you to pay any bill in Australia09:12since 2014 pay your credit card off pay09:15someone else to their bank account pay09:17your dentist over be pay you can pay any09:19bill in Australia for five years so09:20people are using this every day and we09:23have more and more merchants that are09:25accepting Bitcoin directly so there’s09:27websites and and cards where I can use09:29to pay for things with my Bitcoin do my09:31shopping every week but now we go a step09:33further where the merchants and cafes we09:36rolled out Brisbane Airport last year09:37every shop there now accepts Bitcoin so09:39the merchants are now accepting it09:41directly as well as those other09:42intermediary services now some people09:45say that Bitcoin isn’t the best method09:47of payment it can get a bit expensive in09:48the networks a bit slow and that’s why09:50we’re working on things like the09:51Lightning Network as you see here so09:53that’s a layer that sits on top of the09:55Bitcoin network it’s not perfect like09:57the internet in the early days we’re09:59ironing out all the bugs and we’re10:00making this thing work better and better10:01over time but as long as you can find a10:04route to another person just like we10:06used with the internet you know it finds10:08a route to that website you want to use10:09you don’t even have to know what’s going10:11on your computer on the back end this is10:12what’s happening in the world of Bitcoin10:14and payments now those cycles that I10:17spoke about this chart huge is just10:19showing you the market cap of Bitcoin as10:20it as it grows compared to the realized10:22market cap so what that means is we can10:25look at the last time a Bitcoin moved10:26you know in a wallet when someone bought10:28it and if they bought it a hundred10:30dollars and then the price runs up to10:31$1,000 we can see that the actual market10:34cap is now a long way away from what10:36they last realized the price of their10:37Bitcoin app so people take profits when10:40that moves too far away and it reverts10:42back to the mean and we bottomed out10:44again last year in 2019 at around three10:46thousand dollars and the little orange10:48line you can see at the top there is is10:50that realize market cap so it basically10:52means where everyone’s had a chance to10:54sell now if they want to take profits10:55and whatnot and so the actual true value10:57that’s been realized at the Bitcoin10:59network is at all-time highs and11:00consistently increasing now people say11:03Bitcoin it’s not a good story value it’s11:05too volatile well it11:07we’re in a bear market we’ve been in a11:08bear market for almost two years and11:10it’s still been profitable for 9011:11percent of bitcoins life to buy Bitcoin11:13you’re still in profit and I believe11:15we’re gonna pass those all-time highs in11:17the next 12 or 24 months and that will11:19go back to a hundred percent of the time11:21becomes been a good store of value now a11:23lot of people to the Gold’s of a good11:25story value if you bought it over $1,90011:27and then it falls to a thousand well you11:29bought silver at fifteen and falls to11:30fifteen dollars but those same arguments11:32we can use for Bitcoin zoom-out look at11:34the longer-term chart over time it’s11:36consistently been a better story value11:38than every currency on the planet so11:41what happens when you’ve got an asset11:42that’s the best performing asset and11:43then planet every year buy one for ten11:45years or there’s a lot of copycats come11:47out and other coins so one of the11:49arguments often hears about Bitcoin11:50Forks someone can copy the network hands11:53up who’s heard of Bitcoin cash it’s a11:55it’s a fork of the Bitcoin network so a11:58community can say well we think Bitcoin12:00will be better if we have this feature12:01and they can split away and it’s up to12:03you then to convince everyone why your12:05coin is better so there’s over a hundred12:07Forks 99.9% of them are crap they have12:10zero value but it’s allowed people to12:13try and experiment with something12:14different now they pretty much extends12:16for all cryptocurrencies there’s over12:18ten thousand out there today the term12:20cryptocurrency probably doesn’t do it12:21justice because most of them aren’t12:23trying to be currencies these days12:24there’s just a lot of projects and12:26businesses in the real world that are12:28using a blockchain technology so we need12:30to start referring to these things as12:31digital assets they’re not trying to be12:33currencies and I think that confuses a12:35lot of people so Bitcoin cash has been12:37the most successful hard fork and that’s12:39only captured around two or three12:40percent of the network so Bitcoin12:42continues to get stronger and stronger12:44we call it anti fragile throw out any12:46attack he won on it or any copycat coin12:48and it continues to gain market share12:50and any feature that actually works12:52really well Bitcoin can update and12:55absorb that feature so now we see12:59everyone wanting to get into this space13:00the payment space banks have had it13:02pretty good for a fair while now so13:04Apple pay launch email card13:05recently Facebook came out with the13:07Libra cryptocurrency13:09now all these coming up with payment13:12coins stable coins JPMorgan have13:15launched their own coin so it’s very13:16different to what Bitcoin are trying to13:18do it’s not finite they can13:20as many of those stable coins as they13:22want and that’s just absorbing value and13:25it’s pegged to fiat currency that has13:27all the issues that I’ve been talking13:28about it’s no good being pegged to13:29something that’s going to be inflated13:31away over time and we’ve already seen13:33big regulatory pushback MasterCard Visa13:36PayPal they’ve all pulled out of this13:38labor project and Mark Zuckerberg was in13:40front of Congress getting and grilling13:42again yesterday one of the things that13:44actually said in that Congress hearing13:46was we can’t call the CEO of Bitcoin in13:49here they’re actually admitting that13:51there’s nothing they can really do about13:52it because it is truly decentralized so13:55for ten years now you know the big banks13:57have seen these huge profits the execs13:59get these huge bonuses and yet here we14:01are at the moment last night the Fed14:03prints another hundred billion dollars14:05and lend it out to banks because they14:06they’re crying poor we haven’t got14:08enough money to show up our books that14:09have been paying themselves these14:10enormous bonuses no one’s gone to jail14:13nothing’s been fixed since the GFC and14:15this is at a time when asset prices are14:18at record highs so the sp500 property14:21prices bonds you name it this has been14:23one of the periods of you know enormous14:27growth and your banks are still crying14:28for you know help us out print us some14:31more money now now people aren’t buying14:34this anymore14:34and it’s very very clear even the14:36Federal Reserve in their notes are14:38admitting that what they did didn’t work14:40it ended up with asset inflation and14:42it’s caused inequality so the top one14:44percent you know they’ve gained enormous14:46wealth the bottom 90% you know we see14:48this in Australia as well there’s no14:49wage growth it’s just getting harder and14:51harder for that average person to afford14:53to live and they report inflation at two14:55or three percent but if you look at a14:57lot of the work that’s been done by you14:58know alternate economist it’s far closer15:01to 7 or 9 percent when you see your pack15:03of the Tim Tams getting smaller15:04your bottle of coke getting smaller and15:06the price stays the same there’s ways15:08that they hide inflation from us so as I15:12said this period should be very15:13prosperous for banks they’ve got it very15:15good they get to create that money and15:17you know they should be really booming15:19but yet we see Deutsche Bank in these15:21European banks are on their knees we saw15:23a study come out this week that half the15:25world’s banks wouldn’t survive a15:26downturn now with markets at record15:29highs and we know that this is one of15:31the longest periods of expansion in15:33history15:34every day a recession is drawing near15:36it’s just a natural part of the business15:37cycle so they’re admitting that when15:39that hits half our banks aren’t going to15:41survive so at the moment they’re giving15:42them a hundred billion dollars a day I15:44very much think that the new QE15:46quantitative easing is going to be to15:47the tune of trillions of dollars to have15:50to say the bank’s now because they don’t15:52have those reserves and they’re so weak15:54we’re hoping to see them take measures15:56to force people to keep their money in15:57them and in the legislation we’re seeing15:59Balian laws being written in in16:01countries like Australia just like we16:03saw in Cyprus so this week ANZ16:05updated their terms where they can16:06freeze your account they can stop you16:08getting money out and they can close16:10your account altogether if it would mean16:11that they would suffer financial loss16:13we’re also seeing the the cash war in16:17Australia at the moment they’re trying16:18to ban those $10,000 payments they’re16:20already talking about dropping that to16:21five or two thousand dollars and where16:23this is all heading is negative interest16:25rates in all these countries around the16:26world that abandon cash the IMF wrote a16:28paper that said look negative interest16:31rates don’t work if cash exists because16:33people can pull money out and if we we16:34want to enforce negative interest rates16:36we need to keep people in banks so we16:37need to ban cash so whether it’s you16:40know banks or the well bond market this16:42is a virus that’s spreading and I think16:44people are asleep at the wheel because16:46we’ve had it pretty good in Australia16:47and and in the US but as soon as those16:50rates go negative in our country and in16:52the US it’s a big big wake-up call to16:54everyone that what what is going on16:57interest rates for the past 20-30 years16:58have been trending down people thought17:00they couldn’t go past zero and yet17:02they’re you know negative one percent or17:03greater in some of these countries now17:05that should be traditionally seen as17:07strong in Europe so the amount of17:09negative yielding debt in the world it17:11recently passed seventeen trillion17:12dollars you know how how easy is it to17:15park some money in gold or Bitcoin or17:17something that doesn’t have a negative17:19yield people are rushing into negativeyielding bonds because they think thatcentral banks are going to print moneyout of thin air and buy those bonds offthem so everyone’s on the one side of17:28the boat and that what worries me with17:29this this bond bubble now at the same17:32time everyone’s playing happy faces here17:34where there’s never been greater17:36mistrust of banks and policymakers so17:39Commissioner Haynes said that trust has17:41been lost to all the corporations and17:43institutions and banks in Australia and17:45I very much agree17:48now for the first time ever we’re seeing17:49widespread civil unrest people say oh17:52you know it’s it’s just Argentina or17:54then it’s just Venezuela then it’s just17:56symbolic17:57this week it’s Chile Hong Kong you know17:59it’s coming to a city near you where18:01people and governments are saying well18:03what we gonna do here let’s just raise18:05taxes and people are saying no we’re not18:07going to stand for that anymore and and18:09everywhere Bitcoin is becoming part of18:11this social movement now at the same18:13time we’re seeing central bankers MarkCarney from the Bank of Englandliterally saying that you know it isn’tfair that the US dollar has this worldreserve currency they get way too muchan advantage here so this isn’t Russia18:25and China throwing this anymore this is18:26their best friend saying that you’ve had18:28it too good for too long now the u.s.18:30being a world reserve currency means18:32that all these other regional currencies18:34have their debt denominated in u.s.18:35dollars and as their currencies fall and18:37u.s. dollar gets stronger they owe more18:39and more money back in terms of their18:41local currency so when seeing the US18:43dollar strengthened at a time when he’s18:45really hurting everyone else and so18:47there’s questions around how long it can18:49remain the reserve currency and make18:51mark carney they’re calling for a newreserve currency a digital currency toreplace the dollar we’re also seeingcalls for the u.s. we know that chinaare launching their own cryptocurrency19:02we’ve seen venezuela launch theirs so19:05whether or not the US does it you know I19:07don’t really care it’s gonna be a case19:09of you know trust us again this is a new19:11currency the only difference is they’re19:13going to be able to monitor literally19:14everything you do on a blockchain versus19:17what they do already with the banks and19:18they’re going to print those hundreds of19:20trillions of dollars of digital US19:22dollars it’s nothing like Bitcoin that19:24has a set amount and Bitcoin just19:26becomes more and more scarce relative to19:29all these other currencies that banks19:31and governments and the Facebook’s of19:33the world want to create so at this time19:36when all our currencies are going19:38digital everyone uses their online19:39banking less people use cash everyone19:42does the pay past these days so money is19:44already digital but people still think19:46about it as as notes or people don’t19:48realize it’s not backbite by gold19:50anymore so we’re seeing penetrations of19:53smart phones you know 90 percent or19:55greater even in emerging markets even if19:57they don’t have a smartphone they’ve got19:59a basic phone these days and you don’t20:00need a good20:01their connection to the Bitcoin payments20:02you need a very basic mobile connection20:04is all you all you need to be able to20:06participate in this network and become20:08your own bank20:09so throughout these Asian countries you20:11know Hong Kong was another recent20:12example where they’ve had issues with20:14the ATMs and whatnot these people are20:16extremely familiar with digital payments20:18and scanning and shops with their QR20:20codes and Bitcoin is just the next step20:22in that evolution of money so the20:25greatest opportunity in lies in these20:27emerging market economies where there’s20:29billions of people so too often people20:31say are the government will never let20:32Bitcoin overtake you know things in20:34Australia or the u.s. it doesn’t matter20:36Bitcoin has already been used widely in20:38Venezuela and all these other countries20:39where there’s billions more people than20:42in Australia the u.s. all these these20:44Western countries that are unbanked so20:46just like they didn’t get phone lines20:47and they started using mobile phones20:49they’re not going to get banks they’re20:51just going to start using digital20:52currencies on their phones so the value20:55of the Bitcoin network comes from the20:57number of connections and that’s why we20:58see just like Facebook grow that any21:00good technology it grows exponentially21:02and the value comes from the number of21:04connections in the network that’s known21:06as Metcalfe’s law so as more and more21:08people use Bitcoin it means more people21:10can send it to each other you know my21:12business that I started we’ve got a21:13number of services from say nine dollars21:16a month to $50 a month our customers are21:18all over the globe how someone in Russia21:20meant to send me nine dollars a month21:21for my newsletter it’s not possible21:23without Bitcoin and digital currency so21:25my business and hundreds of others are21:27examples of what’s possible we’ve crypto21:29currencies without the banking system so21:33this is a screenshot of a blockchain21:35Explorer so just like you can search21:37something in Google with on the Bitcoin21:39blockchain you can search for21:40transactions now this is a good and bad21:42thing if you know anyone’s address you21:44can send anyone else on the network21:46money there’s no no I can sense of that21:48transaction or freeze your account and21:49in terms of crime just last week this21:53helped regulators catch the bad guys21:55this is their best friend they could21:57follow the bitcoins where they’ve paid21:58them to when they cash them out and they22:01catch these crooks so to say that22:02bitcoins bad because you get to use for22:04crime you know that it’s just simply not22:06true it’s a regulators best friend now22:09one of the big debates we are going to22:11have is once Bitcoin starts to implement22:13more privacy so it’s important for be22:15this is not to be able to see every22:16transaction that they do so whether the22:18privacy upgrades come on the main22:20Bitcoin chain or second layers that’s22:23going to be a big debate as we move22:24forward about giving Bitcoin more22:26privacy at the same time we’re going to22:29get rid of those long strings of letters22:30and numbers that you just saw that are22:32confusing you’re going to be able to22:33send your cryptocurrency to Nuggets news22:36Bitcoin or Alex Saunders crypto so human22:39readable names and addresses just like22:41you do in your phonebook click of a22:42button send money to anyone in the world22:44another argument often hear is that22:46bitcoins wasteful bitcoin uses you know22:49more energy than a small country these22:51days but what they won’t tell you in the22:52mainstream is that the vast majority of22:54that is spare capacity at reactors that22:57would already be gone waste or renewable22:59energy so pick coin is the fastest23:01growing renewable energy industry on the23:03planet people are actually going out and23:05and building renewable energy plants23:07because they can start to mine Bitcoin23:09and pay it off you know this is uses23:11expanding our renewable footprint at a23:13time when governments are being slow to23:15act now part of bitcoins one of the23:19features that keeps it so secure it’s23:21the most secure computer network on23:23earth so when you hear about hacks there23:25are people that left their password in23:27there in their email account well they23:28left their you know being logged in at23:30work Bitcoin network has never been23:32hacked because it is so secure all these23:34computers all 10,000 that I showed you23:36at the start on that world map they’re23:38all securing the network so unless you23:40can hack every one of those at once you23:42can’t hack the Bitcoin blockchain so23:44this feature of how much energy it uses23:46secures it if governments tried to23:48attack it with every supercomputer and23:50on earth it wouldn’t even put a dent in23:53Bitcoin there’s so many more computers23:54globally that are securing the network23:57all that money that has been invested by23:59those miners to buy those computers that24:02is all very important in terms of the24:04infrastructure of the Bitcoin network so24:06if I said to you I was here yesterday24:08for the panel discussion I think24:11yesterday I said what would it be worth24:12if Microsoft or Apple came out and said24:15hey guys we build a network that can’t24:17be hacked it’s got no down time that24:19would be worth hundreds of billions of24:21dollars so that is what the Bitcoin24:22network is it’s not just this payment24:24system or this store of value it’s the24:26most secure computer network in the24:28world and that24:29while we see someone like Microsoft say24:31geez this is better than anything we’ve24:32got let’s just our building our products24:34on top of the Bitcoin blockchain so24:37these household names like Microsoft24:38Vanek or one of the biggest providers in24:40the world of investment ETFs these are24:43the household names now that people are24:45realizing that oh this isn’t about this24:47isn’t a bubble they’re telling their24:48clients the investment case for Bitcoin24:50now a lot of people are tech savvy they24:53can’t figure out the hardware wallets24:55which is like a little USB stick where24:57you store your bitcoins yourself and has24:58your password on the device so it can’t25:00be hacked but not everyone wants to do25:02that you know we’ve done education25:04around all that sort of stuff if you’re25:05interested but some people they don’t25:06want to hold their own shares they just25:08want someone else to do it for him so25:09we’ve seen reputable companies like25:11Lloyds of London and bit go they’re25:14offering insurance and custody and25:16that’s why we’ve seen influx of high net25:18worth clients over the past 12 months25:20and in Australia our biggest growing25:22demographic is baby boomers so we did25:24one on one education we have a premium25:27community we’re but the number of over25:2965 now and they they’ve been through25:31cycles and crashes they see the25:33importance of gold and they’re starting25:34to understand the importance of Bitcoin25:37at the same time we’ve seen the futures25:39market take off as I said for I’m not a25:41big fan of that maybe it makes me quite25:43a bit more legitimate but I don’t like25:44those type of assets that are backed by25:46real Bitcoin but we’ve seen things like25:48option markets and even decentralized25:50option markets so it’s not one company25:52now anyone can create a market and a25:55theorem it’s the world’s second largest25:57cryptocurrency I’m also very bullish on25:59because the world of decentralized26:01finance is just exploding so instead of26:03paying $20 to calm sector trade shares26:05you’re gonna pay one cent and you’re26:07gonna buy them off someone else that’s a26:08shareholder and what blockchain does is26:10cut out the middleman of all these26:12services that are you know rent-seeking26:14and just taking their little clip each26:15time and it makes everything26:17peer-to-peer so tying this all together26:21we’ve seen the Federal Reserve start to26:23create billions of dollars each night to26:25help these banks and the old trustus you26:27know everything will be fine we’re gonna26:28normalize everything I think that’s why26:30we’ve seen gold correct over the past26:32few years as people thought oh it’s all26:34gonna go back to normal 3% growth 5% in26:36a bonding my retirement account26:38I don’t need gold or Bitcoin and now26:40that story is not being bought anymore26:41it’s qe426:43you know they can’t stop printing this26:44money in the debt based system that 20026:47trillion dollar figure that I’ve spoken26:48about we have to continue to grow and26:50create debt if we’re going to pay all26:52these people so once again we’re seeing26:54a lot of tension whether it’s between26:56you know the US Fed who don’t want to26:58drop rates and Donald Trump saying let’s26:59get rates to zero or negative everything27:01will be growing even more for the first27:03time throughout history we’re seeing27:04real tension between governments and27:06central banks who are saying trust us27:09we’ll fix everything without two levers27:11and now they’re saying I think we’re out27:13of tools here government it’s up to you27:15you need to spend more we’ve done all we27:16can do pass the buck27:17so who’s going to be left holding the27:19back here we know governments are no27:21good at running those economies and it’s27:22up to them to try an ear trick or the27:24central bankers to try something even27:26more crazy and I think actually people’s27:28QE where they enough to hand out money27:30to people because it’s not going to be27:32politically acceptable to put money and27:33give it to the banks and then we run a27:35danger of inflation but people aren’t27:37going to let it fly printing money and27:38giving it to the banks so you guys know27:40the story every fiat currency throughout27:42history has been eroded away over time27:44this is just last year in terms of27:46inflation in in ten countries there for27:48example and with more and more people27:50that Tim Draper’s of the world27:51respectable investors Jack Dorsey the27:54founder of Twitter saying that there’s27:56you know we’re in this Internet age just27:58like the internet opened up the way we27:59transfer information across the world28:01everyone said oh you can’t do that the28:03bad guys were taught for each other28:04Bitcoin allows anyone to transfer value28:06to each other and then a theorem again28:08further expands what we can do28:10peer-to-peer so there’s going to be some28:13sort of world currency on the internet28:15and Bitcoin has the track record so the28:17biggest opportunity that I see is these28:20currencies there’s over 200 currencies28:22globally the top five that are the world28:24reserve currencies of the world sure28:26that they’re fairly strong and whether28:28the US you know you loses its purchasing28:30power with all that debt that’s another28:32story but who on earth is going to hold28:34these hundred Southeast Asian currencies28:36and when the government’s are saying28:38trust us with the currency wars heating28:40up it’s a race to debase their28:41currencies as economies weakened they28:43all try to get the value of their dollar28:45down to help their exports it’s28:46literally a race to the bottom and we’ve28:48seen Donald Trump tweet about this28:49so these currencies have all got market28:51caps in the hundreds of billions or28:53trillions of dollars with that little28:54blip down the bottom there called28:56Bitcoin when28:57in a country with a smartphone can28:58choose to park their wealth in something29:00that’s fixed and scarce29:01or Park their wealth in this this29:03currency that they’ve seen Harper29:04inflate away constantly throughout29:06history I think the choice is pretty29:07clear so we’re seeing this in Argentine29:10record volumes Chile you know the list29:13is very long the number of people that29:15are now choosing Bitcoin instead of29:16something else29:17so the having next May is very important29:19as I spoke about and then again four29:21years later and where to Bitcoin derives29:24its a lot of its value from similar to29:25gold on this chart which you see the29:27yellow block up the top right corner is29:29the scarcity of gold that is something29:31that makes it valuable29:32now if gold goes to $5,000 an ounce29:35maybe people are going to mine it maybe29:36the inflation of gold goes to three or29:38four percent silver we see there as well29:40gets a lot of its value because of its29:42scarcity but Bitcoin as we see it29:45trending up that chart over time as it29:47becomes more and more scarce it29:49increases in value and bitcoin is going29:52to surpass gold in terms of what we call29:53stock to flow the amount of new supply29:55coming into circulation compared to29:57what’s already exists and I think the29:59bitcoins going to surpass the market cap30:01of gold within five years so tying it30:04all together when you look at everything30:06else told you today it’s a payment30:07system the smartest minds in the world30:10are working on the cutting edges of30:11technology it’s a store of value it’s a30:14medium of exchange it’s the world’s most30:15secure computing network what’s all that30:17worth in a world where we’ve got a30:19hundred billion dollar market cap30:20compared to the hundreds of trillions of30:23dollars that exists in currency markets30:24stock markets these technology companies30:28I think it’s an absolute no-brainer to30:30park a little bit of your wealth in30:32Bitcoin and if you want any more30:33information on anything we do come and30:35see me or head to Nuggets news.com30:37today.you thank you30:39[Applause]30:45[Music]
A strong dollar makes America strong. Any campaign to devalue it is likely to backfire.
Elizabeth Warren’s “economic patriotism” differs in style and content from Donald Trump’s economic nationalism, but they have found common cause in vows to weaken the dollar. That is a strangely self-defeating agenda for patriots or nationalists of any political fashion.
Mr. Trump and Ms. Warren argue that China and other emerging rivals weaken their currencies to promote exports and gain jobs, so why shouldn’t America follow a similar policy? Here’s why: Because America is not an emerging country. It’s an unrivaled financial superpower, a position built in large part on hard-won trust in the dollar, which is an enduring source of American power and prosperity.
When the dollar strengthens and weakens in response to buying and selling in the global currency markets, foreign countries don’t protest. Occasionally they have cooperated with the United States to stabilize the dollar. But nothing will destroy trust in American financial leadership, and the benefits that go with it, more surely than for the United States government to start unilaterally manipulating the dollar for its own competitive advantage.
If Vietnam or South Korea manipulate their currencies in a bid to improve their exports, a few of their trade partners may retaliate; if the financial superpower plays the same game, the whole world will respond, because the dollar is the international standard. A record high 60 percent of countries now measure, or “anchor,” the value of their own currencies against the dollar. Any campaign to devalue the world’s anchor could set off a destructive wave of competitive devaluations.
After World War I, when America challenged Britain as the leading global empire, the dollar began gaining on sterling as the currency that most central banks preferred to hold in reserve. Reserve currency status had long been a perk of imperial might — and an economic elixir. By generating a steady flow of customers who want to hold the currency, often in the form of government bonds, it allows the privileged country to borrow cheaply abroad and fund a lifestyle well beyond its means.
Other countries watched the United States assume this role with dismay. In the 1960s, Valéry Giscard d’Estaing, then finance minister and later president of France, called the dollar’s powerful status America’s “exorbitant privilege.” And for nearly a century now this privilege has helped to keep United States interest rates low, making it possible for Americans to buy cars and homes and, in recent decades, run large government deficits that they could not otherwise afford.
When businesses in two countries — say, India and Argentina — want to conduct a deal, they almost always arrange payment not in rupees or pesos but in dollars. Everyone wants to hold the world’s most trusted and liquid currency. Nearly 90 percent of bank-financed international transactions are conducted in dollars, a share that is close to all-time highs... History also suggests that economic size alone will not be enough to propel China to financial superpower status. From 1450 through the late 1700s, the leading reserve currency was held by smaller countries — first Portugal, followed by Spain, the Netherlands and France. These nations were all major trading and military powers with credible financial systems, but not one was the world’s largest economy... Throughout those centuries, the leading economy was primarily China. It never gained the advantages of having the leading reserve currency because, then as now, its financial system lacked credibility.