Government strategy: Why bitcoin will not be the world’s reserve currency

I read an interesting article appearing originally on the website Aikon on the prospect of bitcoin becoming the globe’s reserve currency. The author makes the following points in support of his argument.

Bitcoin is transparent. All transactions involving a bitcoin are reflected on a public ledger. Bitcoin transactions are decentralized. There is no central authority controlling bitcoin issuance, valuation, or settlement. Bitcoin is garnering more participants including individuals, institutional investors, and governments willing to invest in the technology and its tokens.

The world, according to the article, is at the threshold of a financial revolution with changes in the financial system being brought about by the strains on the economic system caused by the Covid-19 pandemic. The article argues that although the United States has engaged less with the global economy over the last twenty years, China, forecasted to provide the world with the next reserve currency, is avoiding completing the tasks necessary for taking the number one spot. Compounding what Aikon has determined as an unwillingness to do what it takes to get the spot is a collapsing U.S.-Chinese relationship.

Given the above negatives against a continued use of the U.S. dollar as the globe’s reserve currency, and the unlikeliness of the Chinese yuan taking this position, Aikon asserts that bitcoin is positioned to be the global reserve currency because, again, of decentralization and the cryptocurrencies underlying financial system. But if we applied the definition of a reserve currency to bitcoin, we should find that bitcoin is not ready to be a reserve currency.

First, bitcoin is not a currency. A currency is a unit of account, a store of value, and a medium for the exchange of goods and services. That a dollar price has been placed on a bitcoin may satisfy the unit of account assertion. The existence of digital wallets that can store bitcoin may further compound the assertion of bitcoin as a unit of account since a wallet provides a place to go and determine the amount of the digital asset that you have.

A store of value, on the other hand, I have my doubts. A currency should reflect an underlying economy and where that economy is functional ie executes rules for trade and commerce in various markets, the currency provides a store of value. Bitcoin has no attachment to an underlying, viable economy as evidenced by the third element of the definition of currency: bitcoin is not used as a medium of exchange in a volume so sufficient that, like the US dollar of the euro, no other currency is necessary for making a transaction in a particular political economy. Bitcoin is not a currency.

The proof that bitcoin is not a currency should be sufficient to negate bitcoin as a reserve currency as well. The website Investopedia provides the following definition of a reserve currency:

“A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments, transactions, and international debt obligations, or to influence their domestic exchange rate.”

Bitcoin’s current market capitalization is approximately $668 billion with approximately 18.6 million digital tokens in circulation. This pales in significance to U.S. dollar reserves of approximately $6.7 trillion. Bitcoin is allegedly capped at 21 million tokens. If all 21 million tokens were available today, to equal total US global reserves, bitcoin will have to be valued at approximately $319,000 a token. While some analysts have called a rise in bitcoin valuation up $400,000 a token, I have seen no estimates as to the likelihood anytime in the near future.

Based on current valuation and uncertainty given the token’s volatility of bitcoin market cap equaling global US reserves, I don’t see the US government implementing any immediate strategy to counter bitcoin as a new reserve currency.

It has always been about speculation …

To understand the trade of currency is to understand the need for speculation. Speculation has always been about managing the future, managing fear. Speculation is about ramping up the future value of currency in order to protect yourself, your knowledge, your property. You make bets that your value will grow. What we produce is merely manifestation of how well we protect ourselves going forward, and the more secure we are in the yield from our labor and the infrastructure on which we exchange value, the greater our currency.

It’s not a gamble when we speculate. It’s not a fool’s errand. It is a natural outgrowth of the prism of fear through which man views his world. Until we get rid of the fear, we will always speculate….

Foreign exchange rates in light of Mnuchin, Powell testimony before the US Senate …

As of  11:23 am AST, 1 December 2020:

How to read the chart:

CAD/USD: If you come to the United States with one Canadian dollar (CAD)and wish to sell it for a US dollar (USD), the market price is .77051 USD.

USD/CAD: If you take a US dollar (USD) to Canada and wish to sell it for a Canadian dollar (CAD), the market price is 1.29766 CAD

CAD/USD=0.77051   USD/CAD=1.29766

CNH/USD= 0.15204   USD/CNH=6.57584

EUR/USD= 1.19642   USD/EUR=0.83573

DKK/USD =0.16075   USD/DKK=6.21944

NGN/USD= 0.00261    USD/NGN=378.336

JPY/USD=0.00960    USD/JPY=104.12

INR/USD=0.01351       USD/INR=73.8918

JMD/USD=0.00675     USD/JMD=145.028

GYD/USD=0.00469       USD/GYD= 205.043

GHS/USD=0.17028    USD/GHS= 5.82869

XCD/USD=0.37037        USD/XCD= 2.70

KES/USD = 0.00900       USD/KES= 109.047

BTC/USD= 16,987.20    USD/BTC= 0.00006

Source: OANDA

Major political/legal events impacting currencies

Today, Steven Mnuchin, Secretary of the U.S. Department of the Treasury, and Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System, are testifying before the U.S. Senate Committee on Banking, Housing and Urban Affairs.  Questions are expected to seek clarification as to Secretary Mnuchin’s request that remaining funds from the CARES Act be sent back to the Congress’ general fund.  Chairman Powell will reiterate the need for fiscal policy in the face of increasing COVID-19 infections and an economy that is still on the rebound.  

Source: U.S. Senate Committee on Banking, Housing and Urban Affairs

10:37 am 13 November 2020, Foreign exchange rates between U.S. and select countries in East Africa, West Africa, the Caribbean, and Asia

As of 10:37 am EST, 13 November 2020:

How to read the chart:

CAD/USD: If you come to the United States with one Canadian dollar (CAD)and wish to sell it for a US dollar (USD), the market price is .76327 USD.

USD/CAD: If you take a US dollar (USD) to Canada and wish to sell it for a Canadian dollar (CAD), the market price is 1.30996 CAD

CAD/USD=0.76327   USD/CAD=1.30996

CNH/USD= 0.15112   USD/CNH=6.61616

EUR/USD= 1.17938   USD/EUR=0.84780

DKK/USD =0.15838     USD/DKK=6.31214

NGN/USD= 0.00262    USD/NGN=380.053

JPY/USD=0.00950      USD/JPY=105.23

INR/USD=0.01340       USD/INR=74.4783

JMD/USD=0.00671     USD/JMD=145.880

GYD/USD=0.00469       USD/GYD= 204.829

GHS/USD=0.17098     USD/GHS= 5.81812

XCD/USD=0.37037        USD/XCD= 2.70

KES/USD = 0.00909       USD/KES= 108.088

Source: OANDA

Major political/legal event in the United States

Yesterday in attempt to address attacks on American national security, President Donald J. Trump issued an executive order prohibiting transactions in publicly traded securities of Chinese military companies.  President Trump argues that capital raised via transactions in the securities of these companies is eventually channeled into financing improvements in Chinese military intelligence gathering.

Source:  Executive Office of the President

Treat America as a colony. Extract and profit as much as you can …

Opinion by Alton Drew

The typical American’s view toward the economy is what can this economy do for me; provide to me. There is this notion that social, cultural, or political allegiance to the economic system should be compensated with some guaranteed system of job or business opportunity. An economic system goes a long way in demonstrating its validity to taxpayers if it can provide jobs and an environment that supports trade, but relying on promises to “Make America great again” or “Build back better” is not wise or practical. You are setting yourself up for failure or mental and emotional depression.

Rather, it may be best to maintain a colonizer mentality. Yes, it is ideal that the governing authority of a jurisdiction have in place rules that facilitate and protect trade but that is not enough for any success. I find most political rhetoric on the economy is fluff and puffery and have observed that all substance in trade is generated from the “bottom” and on the “side.”

On the bottom is the extractor or producer, capturing and processing the resources necessary for creating goods and services. Coming in from the side are the traders who are constantly in search of information on consumer tastes, producer capacity, and opportunities for capital deployment. Also on the side is the capital, the holder of the “dry powder”, pooling resources with other holders of capital and weighing competing narratives provided by traders and merchants that describe the best investment opportunities.

Again, if government is doing its job, it is first and foremost ensuring optimal conversion of human, natural, and financial resources by implementing and enforcing rules that allow for accumulating and processing resources by traders and liberal movement of capital from investors. It is effective facilitation that gives elected officials fodder for validating and promoting the political economy.

The colonizer mentality tells us to keep an arm’s length between ourselves and the politician. I would argue they need us more than we need them. The politician cheerleads the economy but the producer, trader, and banker give the politician something to cheer about. While the politician’s rhetoric helps her hold sway over a voting public, the globalisation of capital and freedom to search for economic opportunity in alternative jurisdictions gives the producer/trader/banker some sway.

Both sides, the political and the commercial, need each other but the commercial side should avoid the populism and emotionalism that relegates most taxpayers to the “consumed” class, a class stuck in the downward spiral of selling time for pennies, where the failure to spend time on accumulating knowledge necessary for creating “currency” is creating, in my opinion, an increasingly devalued populace; one prone to the button-pushing of politicians.

Be non-emotional toward the political economy. America does not exist to nurture or cater to your emotions.

Update: Dollar continues depreciation against a number of currencies in face of more elections legal action by President Trump

As of 8:21 pm EST, 5 November 2020:

How to read the chart:

CAD/USD: If you come to the United States with one Canadian dollar (CAD)and wish to sell it for a US dollar (USD), the market price is .76351 USD.

USD/CAD: If you take a US dollar (USD) to Canada and wish to sell it for a Canadian dollar (CAD), the market price is 1.30955 CAD

CAD/USD=0.76351   USD/CAD=1.30955

CNH/USD= 0.15097   USD/CNH=6.62248

EUR/USD= 1.17863    USD/EUR=0.84834

DKK/USD =0.15827     USD/DKK=6.31674

NGN/USD= 0.00260    USD/NGN=382.756

JPY/USD=0.00962       USD/JPY=103.98

INR/USD=0.01349       USD/INR=73.9934

JMD/USD=0.00678      USD/JMD=144.450

GYD/USD=0.00478       USD/GYD= 209.187

GHC/USD=0.00002       USD/GHC= 58,277.2

XCD/USD=0.37037        USD/XCD= 2.70

Source: Bankrate

Major political/legal event in the United States:  Ballot counting is continuing in the U.S. presidential elections. Democratic presidential candidate Joseph R. Biden reportedly has 264 unofficial Electoral College votes while Republican candidate Donald J. Trump has 214 unofficial Electoral College votes.

The official declaration of President-Elect is scheduled for 14 December 2020.

Today, the Board of Governors of the Federal Reserve System decided to maintain its target range for its inter-bank rate between 0 and .25%.

Also, today, President Donald J. Trump held a press conference expressing concern about how ballots were being counted in a number of states.  He indicated that he was prepared to pursue legal action to ensure that ballot counts were conducted in a fair and transparent manner.

Source: Bloomberg, Federal Reserve

Foreign exchange rates between U.S. and countries with diplomatic presence in Atlanta

As of 11:02 pm EST, 29 October 2020, here is the price of the U.S. Dollar in foreign currency of interest:

1 EUR= 1.17085 USD   1 USD= .85398 EUR

1 XCD (Eastern Caribbean) = 0.37037 USD  1 USD= 2.70 XCD

*1 CHD (Canada)= 0.75053 USD  1 USD= 1.33221 CHD

*1 CHF (Switzerland)= 1.09530 USD   1 USD= o.91281 CHF

*1 ISL (Israel)= 0.29219 USD     1 USD = 3.40283 ISL

*1 ARS (Argentina)= 0.01277 USD    1 USD = 78.2904 ARS

*1 BSD (The Bahamas) = 1.00 USD   1 USD = 1 BSD

*1 ECS (Ecuador)= 0.00004 USD    1 USD = 24,094 ECS

*1 BRL (Brazil)= 0.17356 USD   1 USD = 5.75821 BRL

*1 KRW (South Korea) = 0.00088 USD   1 USD = 1131.97 KRW

*1 HTG (Haiti)= 0.01575 USD   1 USD = 61.7871 HTG

*1 LRD (Liberia) = 0.00541 USD   1 USD = 184.727 LRD

*1 MXN (Mexico) = 0.04691 USD     1 USD = 21.3101 MXN

*1 JPY (Japan) = 0.00957 USD   1 USD = 104.44 JPY

*1 JMD (Jamaica) = 0.00678 USD   1 USD = 144.351 JMD

Source: Bankrate

Foreign exchange rates as of 7:18 am EST

As of 7:42 am EST, here is the price of the U.S. Dollar in foreign currency of interest:

1 EUR= $1.18322

1 AOA (Angola)= $0.00154

1 ZAR (South Africa)= $0.06138

1 NGN (Nigeria)= $0.00262

1 INR (India)= $0.01357

1 KES (Kenya)= $0.00913

1 CNY (China)= $0.14976

1 XCD (Eastern Caribbean)= $.37037

*1 CHD (Canada)= $0.76044

*1 CHF (Switzerland)= $1.10252

*1 ISL (Israel)= $0.29503

*1 ARS (Argentina)= $0.01285

*1 BSD (The Bahamas)= $1.00

*1 ECS (Ecuador)= $0.00004

*1 BRL (Brazil)= $0.17850

*1 KRW (South Korea)= $0.00088

*1 HTG (Haiti)= $0.01578

*1 LRD (Liberia) = $0.00512

*1 MXN (Mexico) = $0.04740

*1 JPY (Japan) =$0.00955

*1 JMD (Jamaica) =$0.00680

Source: Bankrate

*Has a consulate office located in Atlanta

Buying a piece of America from abroad? Here are your rates….

As of 9:04 am EST 22 October 2020, here are your exchange rates from selected countries:

1 Euro = $1.19 USD

1 Kwanza= $0.0015 USD

1 Rand= $0.061 USD

1 Naira= $0.0026 USD

1 Rupee= $0.014 USD

1 Shilling= $0.0092 USD

1 Yuan= $0.15 USD

1 Eastern Caribbean Dollar= $0.31 USD

Source: Morningstar

Identifying the economic value within the African Diaspora and designing currency to transmit it …

Today while waiting for a haircut, a lovely young lady, who was waiting on her companion, asked me if I was a professor.  I was caught off guard by the question for it seemed almost prescient in nature.  I had been an adjunct professor back in Maryland, I told her.  She then asked if I had been on television. Again I informed her that I had made two appearances on a business news channel.  I expected the exchange to end there since her companion was finished with his haircut, but fortunately the conversation did not end there.  She proceeded to ask my opinion about the current state of the economy as it impacted black people.  I was happy to oblige since the topic was interesting and yes, when you get to engage a very attractive woman on the state of the political economy (underscore very attractive), you don’t pass it up.

The conversation turned to whether African Diaspora communities could use their own currency.  My answer was yes, but to get there we have to first identify a resource that could be used to generate an underlying value for the currency.  A true community is built on a resource the extraction, processing, and distribution of which leads to an industry that generates the income necessary for sustaining the communities members.

Second, there has to be a banking/financing resource in place to convert the assets of the underlying resource into loanable funds.

Right now we have very little of the above two components.  For example, Africans in America hold very little of its capital.  By some estimates, Africans in America hold approximately two percent of total capital in the United States. In addition, consider farm holdings by Africans in America.  Africans in America hold approximately two percent of all farms in the United States, according to the website ShoppeBlack.us.

Compounding the farmland problem is the lack of strong financial infrastructure through which not only lending can be accomplished but also trade in the securities that have underlying them black farm output.  There are approximately 45 black-owned farms located in 20 U.S. states.  There are, however, 14 black owned banks located in eleven states to support these farms.  It is a strong financial infrastructure that provides funding for land acquisition, seed, and new equipment and the current black owned facilities for lending are not enough.

Money is created when loaned funds for land acquisition, seed, and equipment are placed in a farmer’s checking account.  At this point black-owned banks could issue currency distributed by the Federal Reserve or create its own currency where a special currency is designed to be used by black farmers and any other industries related to or depending on black-owned farms including black-owned suppliers, black-owned restaurants, black-owned pharmacies and wellness stores, etc.

There is theory and there is application. With one to two trillion dollars in output, Africans in America could invest in more farmland while expanding their financial infrastructure in order to support lending, securitization of debt, and issuance of their own debt.  Where more land is not available, the next move may have to be the cultivation of intellectual capital and thus make greater inroads into the creative industry space.

On the other hand, Africans in America, rather than trying to replicate the existing model, may have to consider a completely new model for generating and trading currency, one where the resource is unique to and managed solely by Africans in America.