This article was written exclusively for Investing.com
- Technology makes the world a smaller place
- Few arguments about the value of blockchain technology
- Russia’s invasion of Ukraine has bifurcated the world
- How long before each side has a currency?
- Are any current global reserve crypto candidates?
Globalism is the operation or planning of economic and foreign policy with a worldwide perspective. This ideology believes that people, goods, and information should cross national borders unfettered. At its best, globalism creates a socio-economic system dedicated to free trade and free access to markets. In essence, it's the opposite of nationalism.
Nonetheless, globalism is a complex issue. Some interpret it as placing the interests of the entire world above those of individual countries. Another view is that the whole world is the proper sphere for one dominant country to project political influence.
Recent events suggest that the world is moving toward a bifurcated form of globalism, with two different ideological systems competing for world leadership. At the same time, technological advances in financial markets, or fintech, have birthed a new asset class that competes with fiat currencies.
Cryptocurrencies are an ideological means of exchange that reject any government control or involvement. Cryptos return the power of valuing the exchange instruments to individuals who buy and sell them in a transparent marketplace with technological advantages that increase transaction speed, improve efficiency, and create a trail for record-keeping.
Globalism and cryptocurrencies can exist hand-in-hand in an ideologically bifurcated world.
Technology makes the world a smaller place
Those of us who were children in the 1960s and 1970s have seen the vast changes caused by technological innovation. We witnessed a workplace where computers emerged and improved efficiency.
Technological advances in media have bombarded us with too many choices to count. As a result, communications have evolved.
The smartphones we now carry around in our pockets are tools to contact and even see people worldwide. They are also powerful computers that can replace cameras and calculators, and they put a wealth of information at our fingertips or via voice command. Artificial intelligence programs remember our activities, making our computers, smartphones, and other devices one step ahead of our next search. The AI advances have also made our lives a lot less private.
Even though the global population has grown from around three billion people in 1960 to nearly eight billion in 2022, technology has made the world a far smaller place.
Few arguments about the value of blockchain technology
In 2008, Satoshi Nakamoto, an anonymous person or entity, published a white paper, Bitcoin: A Peer-to-Peer Electronic Cash System. His creation, Bitcoin, and the other cryptocurrencies that followed depend on blockchain technology, a database that stores information electronically in digital format.
Blockchain technology was born in 1991 when research scientists Stuart Haber and W. Scott Stornetta sought to introduce a computationally practical solution for time-stamping digital documents so they could not be backdated or tampered with. Nakamoto took the blockchain theory and turned it into practice with Bitcoin, and he referenced Haber and Stornetta’s work in his white paper.
Blockchains maintain a secure and decentralized record of transactions, guaranteeing the fidelity and security of a record of data and generating trust without the need of a trusted third party.
The difference between a traditional database and a blockchain is the structuring of the data. A blockchain collects information together in groups or blocks that hold sets of information.
Blocks have specific storage capacities. When they are filled, they are closed and linked to previously filled blocks, creating a chain of data, thus, a blockchain.
Decentralized blockchains are immutable; the data, once entered cannot be reversed. In cryptocurrencies and other applications, transactions are permanently recorded and viewable by anyone. Blockchains are also called distributed ledger technology (DLT).
Cryptocurrencies have caused more than a bit of controversy over the past years. Still, almost all agree that the underlying blockchain technology is revolutionary, moving finance and other business applications into the technological age.
Russia’s invasion of Ukraine has bifurcated the world
The US dollar is the global reserve currency. Reserve currencies are used by countries worldwide for trade and holdings. The dollar has that position because of the political and economic stability of the United States.
China and Russia, countries ideologically opposed to the US, have been moving away from dollar dominance over the past years. China is the world’s leading gold producer and has been buying domestic gold production.
Gold is a widely recognized reserve asset. China has also been working to make its yuan a more accepted foreign currency worldwide.
Russia, the world's third-largest gold producer, has also been increasing its gold holdings by purchasing domestic production. However, Russia has favored the euro over the dollar for its reserve foreign exchange holdings.
While the war in Ukraine began on Feb. 24, 2022, with the Russian invasion, the watershed event may have come earlier in the month, on Feb. 4.
Russian President Vladimir Putin and Chinese President Xi met at the opening ceremonies of the Beijing Winter Olympics. They agreed on a $117 billion trade package, but more significantly, they shook hands on a “no-limits” cooperation deal to counter the US, Europe, and their allies worldwide.
The “no-limits” alliance likely set the stage for Russia’s invasion of Ukraine and could eventually lead to a forced reunification between China and Taiwan.
The world’s nuclear powers are now divided into two oppositional blocks. China, Russia, Iran, North Korea, and their allies on one side; the US, Western Europe, Japan, Canada, Australia, and their allies are on the other.
While some countries remain neutral, the world power base has bifurcated along ideological lines. The war in Ukraine creates a significant threat given the “no-limits” agreement. US and European sanctions on Russia are a lot less effective given the alliance with China, the world’s second-leading economy.
How long before each side has a currency?
China is farthest down the path to a national digital currency which could one day become a reserve currency. On Jan. 4, 2022, China launched its pilot digital yuan through a mobile app, e-CNY. The launch expands the trials throughout China. The new app allows users in ten areas, including Shanghai and Beijing, to use the digital currency.
On Mar. 9, in an executive order, US President Joe Biden outlined his administration’s plans for “ensuring responsible innovation in digital assets.” One of the initiatives is to:
“explore a US central bank digital currency (CBDC) by placing urgency on research and development of a potential United States CBDC, should be deemed in the national interest.”
The executive order goes on to highlight that the administration wishes to:
“prioritize US participation in multi-country experimentation, and ensures US leadership internationally to promote CBDC development that is consistent with US priorities and democratic values.”
Nevertheless, the fact is, the US is far behind China with regard to the release of a digital currency that could become the new world reserve currency.
The bottom line is that the shift to bifurcated globalism has put China in the lead in the digital currency race.
Are there any current global reserve crypto candidates?
Bifurcated globalism with competing allies linked to China-Russia or US-EU is not ideologically compatible with the libertarian cryptocurrency asset class. For that reason, Bitcoin, Ethereum, and the other over 18,100 cryptocurrencies currently available will likely survive unless governments decide to ban them entirely.
In 2021, Ray Dalio, an American billionaire investor and hedge fund manager, said that if Bitcoin is really successful, regulators will “kill it.” Last week’s executive order showed that the US government is not looking to kill the cryptocurrency market but to regulate and put a leash on it to prevent systemic and other risks.
I believe the Chinese digital currency and US digital currency will eventually end up competing for dominance. The odds of Bitcoin or any other crypto taking the leading role are small. However, as the worldwide faith in governments continues to decline, cryptocurrencies not tied to any government or political system will likely continue to play an expanding role in the global financial system.