> The main question we tried to answer is whether a significant shift away from
the US dollar as the dominant “hegemonic” currency is likely to occur in the
foreseeable future, and in which direction the monetary system might develop.
The key conclusion was that the fate of the US dollar as the currency hegemon
depends on a number of factors, with the degree to which US policy makers
would be able to maintain macroeconomic stability relative to other countries
of supreme importance. Only if stability is maintained will the US dollar
retain its position as the safe-haven currency of choice.
In heavily hedged terms, they conclude that the situation is currently stable and likely to remain so. My opinion is that there's good information in this document but the editing (mostly in the sense of structure and clarity) is quite poor, prone to using the very real complexity of the issues at hand as an excuse for weasel words, wishy-washiness, and desperation to please one's boss. In reading this document, I recommend that you keep in mind that the document is from late 2022 and Credit Suisse imploded in early 2023, so, as the document's authors might say, one suspects that it does not represent a level of intellectual rigor that one would prefer to see from a globally important bank.
Economic sanctions imposed by Switzerland on Russian individuals and businesses had the most significant impact on the demise of the bank. Credit Suisse held about $33 billion for Russian clients, 50% more than UBS.
What does any of this have to do with "intellectual rigor?" sources are cited in the paper and the authors are among leading global economists. death by association is a cheap way to avoid the real intellectual rigor of refuting legitimate points in the publication.
Political unrest in the US and US over-reliance on sanctions are two of the most damning threats to monetary hegemony in the 21st century. routine defaults on an arbitrary ceiling of debt have precipitously reduced US credit ratings over the past decade. a federal insurrection is also something you might not wish to see in a country that boasts its safe currency.
Why would the $33B from Russian clients be crucial? Seems far too small compared to the outflows that were happening (q4 22 plus q1 23 more than $150B, I think) for it to be that critical.
Some overengineered paper from January 23. It is 2024 and there is no more cs. I wouldn't take this serious, the bank that published it couldn't even survive 23. No risk management whatsoever.
For those who are claiming they should dismiss this paper because it was written by Credit Suisse (who have collapsed), I will weigh in as someone who works in a bank. The people who wrote this would have had absolutely nothing to do with the banks risk management or corporate decision making, and so exist more or less orthogonally from the people who caused its collapse. This is doubly true given European regulation which requires segregation of business lines within the bank: you even see the report is produced by ‘credit suisse research institute’ which will produce+sell research separately from the risk taking parts of the business. Not saying it’s correct/not prone to groupthink but the people writing will be some of the top economists/research analysts out there.
No one is saying you can't make money off of crypto in the same way you would on Gamestop-esq meme stocks. That does not mean a mechanism to gamble (which is what speculative investments are) will end up as a way of commerce (monetary systems).
I'm not sure why anyone would want to use a monetary system that maximizes transaction costs. Yeah sure you personally have an incentive to advertise it, since you are directly benefitting from roping people into paying these transaction costs, but that doesn't make it practical.
By transaction costs I not only mean the fees you pay to the miners by the way. Every time there is deflation, there is an opportunity transaction cost made up by the difference in price between the forward pulled transaction and the change in price due to deflation of the reverse transaction that would happen in the future. (Assuming equilibrium of sales and purchases over a lifetime).
Companies must source inputs ahead of time, so they are spending money first and earning it later. In other words, they must sell low and buy high. Any enterprise must overcome the hurdle rate imposed by deflation induced transaction costs. This is why deflation kills an economy. The easiest way to reduce transaction costs is by not producing anything and that is why the Bitcoin economy has remained small.
I think the fundamental and radical idea of cryptocurrency is that this is not true. Currency can have value even if it isn't derived from the point of a sword.
I know crypto has a lot of scam baggage and that is unavoidable for a permissionless system, I think. Regardless, the idea that you can wrest away the levers and dials of monetary policy away from world powers and put it in the hands of a permissionless system is a powerful and potentially system-altering one. I have been a fan of cryptocurrency for this reason since well before people were writing news articles about them.
I think the phenomenal success of crypto to this point is a strong indicator that you might be wrong, or at least not totally right
> I know crypto has a lot of scam baggage and that is unavoidable for a permissionless system, I think.
Being resistant to scams is one of the key features of modern finance. The joke that cryptocurrencies continue to rediscover the history of finance is not just a joke, it is the reality.
So many of the things that the crypto world complains about with fiat currency are actually things that allow the whole system to function well, and came about to combat scams and frauds that people don't want.
> I think the fundamental and radical idea of cryptocurrency is that this is not true.
Not to sound nitpicky but an idea cant dis-/proof anything.
Trust is the only foundation of cryptocurrencies, and your argument is a good example of biased reasoning to coat it with such (i guess you still hodl). The volatility of cryptocurrencies will be their downfall aka. loss of trust in the long term because people already have the expectation of rising value, whereas a stable currency would require a roughly 1:1 exchange, which would make it hot garbage for pretty much all the hypsters. They value hodling and not circulation, which is the primary use case of a currency.
My argument is a systemic one. I am not pointing to graphs or big players.
There is quite a lot of crypto that holds a very consistent value in a trustless, permission-less way and that people (including myself) use as a stable store of value. I suppose you might not be aware of them but it doesn't mean they don't exist. I'm not sure that volatility in layer 1 is a bad thing. You don't buy, for example, Ethereum expecting that it will be worth that same number of us dollars today that it is tomorrow. You buy it to use as computing resource on the ethereum network. If you want something that is stable against the US dollar (which itself pretty wildly volotile lately, thanks to the many Cheeto fingerprints of central bank currency manipulation) you might onstead buy DAI which you can be confident will be worth the number of US dollars you paid for it tomorrow. The ecosystem is maturing and there are valid, elegantly engineered solutions in the crypto space. Don't let the scams and speculation make you ignorant to the real work talented people are doing.
Gold is not a currency, it's a commodity. It has been used for 1000's of years for adornment, because of its mailability and luster. Recently it also has application in industry at an unprecedented scale.
Bitcoin is a token that represents an amount of wasted electricity. It has no value other than the intrinsic ones people place on it, like a currency. We can decide that bitcoin is worthless tomorrow and it would be. If you do the same for dollars, you have the US military to answer to...
The US military is mostly irrelevant for maintaining the value of the dollar. If you treat the dollar as worthless or use other currencies they won't bomb you.
It's really more civilian law enforcement that maintains the value of the dollar and blocks alternative currencies from widespread adoption. If you incur a tax liability to the US government then you have to settle the debt using dollars: they won't take gold or Bitcoin or cattle. And if you fail to pay then eventually they'll use violence (or the threat thereof) to seize your assets.
Gold has always been a currency, it is a currency right now and it will be a currency for all future. That's why central banks deal in gold, while the serfs pay interest for fake paper money. Not the entire world is shackled and under military or police threat. You could also free yourself, if you research how to. Even without using any bitcoin nor gold.
Not in Mesoamerican civilizations (Aztec, Mayans). Also not for the Chinese, who used silver for currency (and gold for ceremonial purposes).
Around the Mediterranean, gold became a currency 'only' around 500BC with the Lydians—which is a very long time after the first economic records we have, which take back to Ur III, the Babylonians (Hammurabi), Ancient Egypt.
People don't seem to understand that money is not much different to a deed that declares your property rights over a house or a plot of land. There is no difference. Whether it is paper or a metal coin, there is no difference since the money is like a legal contract recording how much abstract value you have given to "society" and how much access you have to resources. It is more like a key that opens doors. The problem with believing that money is a commodity is that such a commodity needs to be a master key, capable of opening every door. This ability to open doors is known as "liquidity", but perfect liquidity cannot exist. If you had a door for every point in space time, it is pretty clear that your key from 2024 can't open a door from 2023. It also can't open a door in Brazil when the key was made in the US. Money is always bound in time and space, but gold gives the impression that it is neither.
The debasement is an inevitable fact that those metaphorical doors are closing and opening over time. In fact, the impression that gold bugs give is that the government and general public should force all those doors to stay open at great expense, while they do nothing as if laziness was a virtue that demands compensation.
> money is like a legal contract recording how much abstract value you have given to "society" and how much access you have to resources
Finally, someone who understands money. As opposed to the typical "but my military!", as if no country with a strong military had ever had its currency fail...
I would only emphasize the importance of the scarcity aspect of money, which seems to be a (purposely) forgotten lesson nowadays. It reminds me of the historical importance of the Spanish Price Revolution, which with its 1.2% yearly inflation, nowadays it would be considered laughable.
>>> as if no country with a strong military had ever had its currency fail...
Has there been a widely accepted currency (true currency) that hasn't had military might behind it? Has there been a dramatic military failure that hasn't been followed by currency decline?
Military, state and currency are all interlinked on a pretty deep level.
> Has there been a widely accepted currency (true currency) that hasn't had military might behind it?
Yes, even today, for example, Costa Rica has no military yet they have their own currency. Its Central Bank manipulates its value by buying and selling the currency in the free market, which is what many countries do nowadays (although not always by the same mechanisms).
> Has there been a dramatic military failure that hasn't been followed by currency decline?
Yes, unless by "dramatic military failure" you mean having their economy destroyed, at which point of course the currency fails, but that's because economy destruction leads to currency failure regardless of any military defeats.
However, the better question is: has any country with a strong military ever had its currency fail without any military defeat?
And the answer is yes, plenty, which proves that having a strong military has nothing to do with having a stable currency.
Let's say your currency starts to fail (say, due to hyperinflation)... what is the government going to do with the military to prevent the collapse? Order them to intimidate the market?! That's a completely ridiculous proposition...
"China has spearheaded record levels of central bank purchases of gold globally in the first nine months of the year, as countries seek to hedge against inflation and reduce their reliance on the dollar.
Central banks have bought 800 tonnes in the first nine months of the year, up 14 per cent year-on-year, according to a report by the World Gold Council, an industry group."
> hedge against inflation and reduce their reliance on the dollar
If I am dealing in X I don't buy more X incase X's value decreases
The parent comment is correct, gold hasn't been a standard for a long time to base the value of currency on. It is simply a commodity with a relatively stable value up until now.
The only thing currency value is based on is how much people are willing to pay for it and as correlation to that how many people are willing to accept it as payment.
I invite you to walk into your local grocery store and attempt to pay in anything other than your local currency, you will fins out just how worthless that is as a currency.
So for me, a non-US citizen who isn't doing any dealing with people willing to accept dollars, dollars are as much a currency as pet rocks are. They can be converted into currency but they are not currency. Gold holds the same property although I would much rather hold gold than US dollars and that is where your quote on central banks come in.
I'm much more likely to get the same amouny of currency from gold than from US dollars on the future should I choose to sell it.
Precisely. why do you think the Bitcoin people are so self-contradictually enthusiastic about El Salvador and other countries experimenting with treating it like fiat? Mining farms are fragile targets that can be destroyed with a jerry cans of gas, and increasingly centralized.
The blockchain doesn't protect jack shit. if someone wants to take out key infrastructural concentrations it's the police forces of the respective territories these mining farms are located in that are going to guarantee the actual security for the protocol.
The great irony here is that this very protocol or, rather the people who promote it, are doing so specifically to undermine the stability of the economies they depend on for their project's physical security.
It's amazing that these self- dealing sociopaths have made it as far as they have.
Whatever your thoughts on crypto, it seems short-sighted not to include some discussion of it in a "Future of the Monetary System" paper. You have countries like El Salvador moving to a Bitcoin standard, BlackRock's CEO saying "tokenization will be the next evolution in markets," Norway testing Ethereum-based CBDCs, etc.
"0 mention of Bitcoin" might have sparked a discussion, but: as a Millenial I feel your mention of "Boomer" is unwarranted, and as a dev in fintech I very much understand blockchain tech, but "the future of the monetary system" and Bitcoin? Payments maybe, but "the monetary system"? Please.
Hasn't the monetary system historically reverted to commodity money whenever there was a shakeup in the major powers?
I have doubts about the "bitcoin is better commodity money" idea myself, but they have more to do with the fact that Bitcoin is probably quite easy to kill at superpower scale and less to do with the idea that we will never see commodity money ever again.
1. Just ban it. Kick it off the app stores, prevent financial services companies from dealing with it, and maybe make an example of a renegade bitcoin ATM company to stop nerds like us from getting ideas.
2. Attack the blockchain itself. It can stand bozo-scale hacks, but NSA scale? They control the internet backbone. They can just drop the packets. They have hardware backdoors all over the place and have been known to successfully hack completely airgapped setups. Maybe they even bring clever math/chips to the fight. That's more speculative than necessary, but again, not actually very speculative next to their historical accomplishments.
3. Deploy police to server room. Or special ops, if they played the non-extradition-country game correctly.
We aren't talking about Goldfinger levels of infrastructure. No secret island nuclear program is necessary... but even if it were, remember that superpowers are absolutely capable of that sort of thing.
What's actually happened in practice: A huge number of politicians became entangled in SBF's operation, and the direct attacks made to date could be construed as attempts to get in at lower prices or control local onramps.
Government officials that seek crypto bans end up with conflicts of interest. This is a recurring theme across the various countries that have announced such things. They don't deploy the secret taxpayer dollars to combat it, because they quickly get an angry phone call from a so-and-so on the inside.
The superpower system works within an imaginary of imperial expansion, where everyone's motives converge on putting more assets on their balance sheet even if it means lying about how the books got that way. During the rise of the modern nations that meant supporting a stronger state and a bigger bureaucracy. If we define the quality of the accounting at scale as the goal, then blockchains are just a next progression in technology. That's still compatible with governance and power-seeking, it just changes the landscape of power in a way that shifts around the motives. The number of middlemen involved isn't zero, it doesn't stop corrupt dealing, but it has some substance, particularly in the largest scale of international finance, where you really can't "look to an authority".
Remember how people thought WWI couldn't possibly happen because the powerful people were incentivized through their business dealings to keep the peace? It's all fun and games until it becomes an actual threat, and unfortunately we have a pretty good idea from history about how commodity money can turn into a threat.
I agree that bitcoin is definitely in trouble if there's a powerful totalitarian world government that can unilaterally hack anything, stop any internet service via backdoors and packet manipulation, potentially break double SHA-256 encryption and send invincible commandos into any location without any kind of repercussions.
The US has done most of the things you are laughing off, lol.
It's not common for a superpower to deploy its strength. Most of the time you would be right to laugh off the suggestion that it would. Most issues are pretty minor on this scale and internet tough guy rhetoric tends to overestimate the importance of every stupid thing. However, the BTC maximalist scenario is not minor on this scale. It's up there with oil. If it comes for the USD, there will be a fight.
I would bet on BTC today (and have). I would not bet on it to win this fight.
"See that mining farm over there? it's officially outside the protection of our police force. Come have at it, anyone who wishes to douse it with a few jerry cans of gss or ram it with an excavator, it's fine with us."
There, done.
The blockchain is secured by proof of work, but proof of work is secured by proof of lead.
As an example in support of "this piece isn't about payment systems" bit, the piece doesn't seem to mention things like credit-cards either... but that doesn't imply the author is an credit-card hater ideologue.
Then maybe you should broaden your knowledge beyond dev and software? This part of future of crypto as a new asset class. It's real deal. Yes it takes years but seriously few years ago everyone was not even taking things serious enough.
> The main question we tried to answer is whether a significant shift away from the US dollar as the dominant “hegemonic” currency is likely to occur in the foreseeable future, and in which direction the monetary system might develop. The key conclusion was that the fate of the US dollar as the currency hegemon depends on a number of factors, with the degree to which US policy makers would be able to maintain macroeconomic stability relative to other countries of supreme importance. Only if stability is maintained will the US dollar retain its position as the safe-haven currency of choice.
In heavily hedged terms, they conclude that the situation is currently stable and likely to remain so. My opinion is that there's good information in this document but the editing (mostly in the sense of structure and clarity) is quite poor, prone to using the very real complexity of the issues at hand as an excuse for weasel words, wishy-washiness, and desperation to please one's boss. In reading this document, I recommend that you keep in mind that the document is from late 2022 and Credit Suisse imploded in early 2023, so, as the document's authors might say, one suspects that it does not represent a level of intellectual rigor that one would prefer to see from a globally important bank.