Are We Headed for a New Monetary Order?

Photo by John McArthur

Last week, Jim Bianco of Bianco Research published a Bloomberg Op-Ed titled A New Global Monetary Order Threatens the Dollar.  For those who haven’t read it, please do.  Bianco points out that there have been several monetary orders in history, each lasting an average of 50 years and each with a different primary reserve currency.

Today’s dollar-dominated fiat system has been in place since 1971 when then-President Nixon killed the gold convertibility feature of the US dollar. For those counting, that was 50 years ago.  So by historical standards, we have reached the average life expectancy for a monetary system.  The question is, what will this new system look like?

According to Bianco, we are heading for a DeFi world led by a stablecoin reserve currency. A stablecoin is a cryptocurrency that is pegged to another asset’s value, and these stablecoins account for most of the daily volume in crypto.  Despite some of the big corporate names in the developed world jumping on the bandwagon, Bianco says it’s developing nations leading the charge in terms of crypto adoption.

While a fully evolved DeFi world free of absorbent transactional and service costs sounds great on paper, the only way we can get anywhere remotely close to that is with complete buy-in from the developed world.  Given that these countries are the ones that power today’s monetary machine, it isn’t easy to imagine this transition occurring anytime soon.  These countries have resisted change thus far, and while it’s possible the tide shifts, it’s not likely to happen overnight.  So just because we are in year 50 of the dollar-based monetary era, it doesn’t mean we will be trading in our dollars for stablecoin en-mass overnight.

The rising inflation we are witnessing due to the aggressive monetary policies of the Fed, ECB, and most other developed nations has undoubtedly provided a tailwind for proponents of crypto adoption.  The critical hurdle now will be getting the full support of financial regulators and the numerous service providers who benefit from the existing system – which will be challenging to say the least.  In fact, it looks more and more like these countries are doubling down on their centralization efforts as their central banks push towards their own digital currency.  These digital currencies will be anything but decentralized, as central bankers will have even more control over the currency and its uses.  This isn’t a judgment on whether that is good or bad – it’s simply to point out that the critical cogs in the existing monetary machine don’t appear ready to embrace the DeFi dream at the moment.

While it doesn’t seem as though a shift towards a stablecoin-based monetary order is imminent, that doesn’t mean it’s not possible.  Bianco notes in his piece that “previous bans in China, Russia, Nigeria and India have not stopped its growth,” so this will give DeFi believers some confidence that things are trending the right way.  While history would suggest we are due for a new monetary order, it might take some time.  And who knows? Maybe the new order is decentralized as described by Bianco, or perhaps it’s ultra-centralized led by Fedcoin and its international cousins.  Or perhaps it’s something else entirely.

To be continued…