How the emergence of the BRICS as an alternative to the global dominance of the US dollar will usher in the global adoption of bitcoin.
This is an opinion piece by Milan Stanojevic, primary school teacher and filmmaker.
Since the end of World War II, the United States has always been the dominant global superpower. The Soviet Union struggled for superiority during the Cold War, but ultimately failed as it lost control of its satellite states. This was evident when the Berlin Wall came down in 1989.
In recent years, US hegemony has been challenged by China, a nation that has accumulated enormous wealth since opening its economy to the world. China now appears poised to usurp global power as it continues to engage in a form of financial imperialism across the globe (for more, read “China Unbound” by Joanna Chiu). Today, Russia and China are part of a global framework known as the BRICSwhich includes Brazil, India and South Africa – with other countries, such as Turkey and Saudi Arabia, possibly waiting in the wings to join as well.
In case you haven’t been paying attention, the world is undergoing a major paradigm shift, with the BRICS at the center. Banks around the world are bankrupt, Saudi Arabia and Iran are negotiate historic peace talks and countries are begin to move away from the US dollar as the world’s reserve currency.
An important question to consider, then, is how does the current state of geopolitics and macroeconomics shape the future of a hyperbitcoinized world? I recognize that no one can predict the future with any real certainty, however, I would like to share my view of how game theory unfolds over time.
I believe that over the next few decades, the emergence of the BRICS as an alternative to US hegemony will shift the global economy in three phases: The first phase will be a pivot from a unipolar financial world to a multipolar world. In the second phase, Bitcoin becomes a medium of exchange and a unit of account for many countries. In the third and final phase, we are experiencing true hyperbitcoinization.
First phase: from the US dollar to gold
Most people have no idea this is happening, but we are already in the early stages of phase one and creating a multipolar world.
In the 1970s, under President Nixon, Saudi Arabia agreed to price its oil in US dollars in exchange for military defense. As a result, all other countries were forced to hold US dollars, making it the world’s reserve currency. Having such an exorbitant privilege means that whenever the US government decides to print money, it can essentially buy oil for free. As the world’s reserve currency, US Treasuries have become the safest asset for investors (I know that statement sounds comical today). The consensus has been that there is no chance of the US defaulting on its own debt, since it can print endlessly. Nation states bought huge levels of US debt for over 50 years.
However, this is no longer true for all nations. China And Russia bought fewer Treasuries over the past decade. Rather than hold US debt as an asset, they were increase their gold reserves. India, too, accumulates a stock of gold. It seems that the BRICS countries are trying to get back to a gold standard. Under this regime, currencies would once again be pegged to a scarce commodity that many have used as a store of value for thousands of years. But these states are unlikely to settle the majority of transactions using physical gold, given the difficulty of transporting and securing it. What is certain, however, is that Russia now allows countries to buy its oil rubles, yuan and, possibly soon, rupees. In this phase, a minority of nations will continue to deplete their US Treasury holdings, transact in foreign currency, and acquire as much gold as humanly possible.
The rest of the world, especially the West, will continue to operate as it has since the 1970s. Many countries will still be forced to hold US dollars to buy oil. US debt, stocks and real estate will continue to serve as a store of value for most citizens. And fiat currencies, especially the US dollar, will serve as the dominant units of account. I predict that this first phase will last no more than 20 years.
During this phase, many countries are likely to default on their debts and experience currency meltdowns. They will start transacting locally in US dollars as some countries still do today. Rising debt to GDP and inflation levels, coupled with tax increases and unemployment, will lead to massive unrest. Governments will desperately need a solution to an insoluble problem.
Phase 2: The Beginning of a New Era
Phase two marks the beginning of a new era; then there will be no choice but to switch to a fundamentally different monetary system. At this point, non-BRICS countries will quickly adopt bitcoin as both a medium of exchange and a unit of account. This means everyone gets paid in bitcoin and uses it as a store of value. Real estate will still be owned, but people will buy it as a place to call home, rather than a place to park their wealth. Stocks will still be bought and traded, but bitcoin will be seen as the primary savings vehicle for everyone. Rulers and individuals (like you, most likely) who have stacked bitcoins for years will become incredibly rich in a very short time.
In this phase, globalization will not have as much impact as it does today since the BRICS countries will be alienated from the rest of the world. China and Russia will trade almost exclusively with their allies, which will ultimately weaken their economies. These states will compete in the production of gold and the dominant unit of exchange will vary from time to time. Phase two will happen faster than phase one, perhaps in as little as 10 years.
Third sentence: Hyperbitcoinization
The third and final phase is less complicated. Most countries in the world will already have switched to a bitcoin standard. For countries that have not yet done so, they will notice the increase in wealth and standard of living abroad. By then, El Salvador will have become one of the richest countries in the world. Nations still on the gold standard will suffer from being isolated from the rest of the world. Confidence in the current system will disappear.
Additionally, people will recognize that, compared to bitcoin, gold is an inferior store of value. Verifying the authenticity of gold is difficult. Transporting it and securing it are even more restrictive. Russia, China and their allies will have no choice but to adopt bitcoin as their local medium of exchange and unit of account. Phase three will also proceed quickly. I predict this will happen over five to ten years.
This is how I envision game theory for the next 20 to 30 years. Perhaps most, if not all, of my predictions will be wrong. What I am certain of, however, is that our world is indeed changing rapidly. Our monetary system is broken. This is reflected in the current banking crisis.
Even though most of my predictions are incorrect, we desperately need a return to a sound monetary system. Bitcoin is the only viable solution IMHO. It might be a good idea to stack some sats now while you still can. You or your children could benefit greatly in the future.
This is a guest post by Milan Stanojevic. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.