In today’s Money Morning…Dalio is right about the general arc of history…Fed to drop research paper on digital dollar…these are lifeboats that they will control…and more…
‘Old finance’ stalwart Ray Dalio recently revealed he holds Bitcoin [BTC].
This is after one of his lieutenants at Bridgewater (the world’s largest hedge fund) jumped ship to join New York Digital Investment Group (NYDIG) to help facilitate a US$100 million bitcoin investment by MassMutual.
I’m not particularly surprised.
The transition from naysayer to HODLer can happen quite quickly.
Dalio even volunteered the information — he wasn’t directly asked.
But the reason for Dalio’s conversion is more interesting, and it directly collides with developments out of the US.
Namely, the proposed issuance of a digital dollar.
Let’s take a look at Dalio’s reasoning in a bit more detail.
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Dalio is right about the general arc of history
As per CoinDesk, Dalio’s study of the history of currencies began in 2008, when he:
‘Began studying the rise and fall of the three most recent global reserve currencies: the Dutch guilder, the British pound, and the U.S. dollar…’
From which he learned that:
‘Currency supremacy moves in three “cycles” that may occur simultaneously: the creation of debt and financial assets; an “internal cohesiveness clash cycle” (“as the wealth gaps grow and the value gaps grow — and political groups grow — you have a greater amount of conflict”); and the rise of another great power to challenge the existing top currency.
‘Whether a currency can withstand such cycles depends on the strength of the economy behind the global reserve currency.’
Dalio’s three cycles of a currency reminds me of the thesis-antithesis-synthesis model put forward by Hegel.
Editor’s note: Don’t read Hegel!
If the first step or thesis is the USD’s current status as reserve currency, then the antithesis or second cycle could be led by the digital yuan.
The final showdown, or synthesis, may well be a huge geopolitical decision about whether to move towards a digital dollar or to choose crypto.
That final choice may well lead to a political and monetary schism for the ages.
Dalio thinks that bitcoin is a hedge against a fiat system where money is debt and debt is money.
In the current fiat system, this means for Dalio that he prefers bitcoin to bonds, which is huge.
In other words, a sovereign default situation like what happened in Greece during the GFC may well be the trigger for a market crisis in Dalio’s eyes.
I’m tempted to agree with Dalio on this outlook for markets and the potential triggers for a huge sell-off.
Barring an ‘X factor’ type event, such as a Chinese invasion of Taiwan or a Russian incursion in Ukraine (basically any war), debt looms as the elephant in the room for central bankers.
Will it be a big country like Japan this time?
If a tiny country like Greece could create that much chaos in 2008, imagine how big the meltdown would be with a larger country leading the plunge into the abyss…
Which brings me to an intriguing/scary scenario.
Will a major Western economy launch a central bank-backed digital currency before or after a debt crisis?
Here are the latest developments out of the US regarding that.
Fed to drop research paper on digital dollar
Here are the comments by Fed chair Jerome Powell and some context via CNBC (emphasis added):
‘“Technological advances also offer new possibilities to central banks — including the Fed,” Powell said. “While various structures and technologies might be used, a CBDC could be designed for use by the general public.”
‘The Fed has been studying payments systems for several years and plans to release a product called FedNow, likely in 2023, that would address many of the issues regarding the need for immediacy in transactions as well as the plight of the unbanked.
‘However, digital coins represent another avenue that central banks are pursuing to make payments more efficient. There remain multiple issues around implementation, though, that have held back the efforts.
‘“We are committed at the Federal Reserve to hearing a wide range of voices on this important issue before making any decision on whether and how to move forward with a U.S. CBDC, taking account of the broader risks and opportunities it could offer,” Powell said. “The paper represents the beginning of what will be a thoughtful and deliberative process.”’
Gee whiz, 2023 is a much tighter time frame for a digital dollar than previously suspected.
That would even put it ahead of ECB President Christine Lagarde’s four-year time frame for a digital euro.
The underlying story here, is that central bankers can see the debt wall approaching and they are trying to secure lifeboats to take them away from it via distributed ledger technology.
These are lifeboats that they will control.
If 2023 is the launch date then I’d expect a debt crisis to play out sometime around then.
You can imagine the various ‘tools’ that can be built into this new money.
A little for this struggling industry here, a little less for this industry that is running too ‘hot’ — basically a system where the old power hierarchy remains in place.
The lobbyists and middlemen will always get their cut. And to quote Jim Cramer, ‘I don’t like it!’
Greg Canavan and Ryan Dinse give you the inside scoop on how the concept of money is changing and what to do about it.
Regards,
 |
Lachlann Tierney,
For Money Morning
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