By now, you have probably noticed that policymakers in the United States, well, at least a section of them, are cozying up to the concept of digital currencies and all the good that it can bring to the world.
Better than Expected
In yet another significant indication that policymakers and the bureaucratic machinery are taking the ever-growing crypto economy seriously, the recently published 2018 Economic Report of the President featured an entire chapter nine dedicated just to cryptocurrencies like bitcoin, ether, litecoin, as well as the future of blockchain regulation.
Sure, there’s still a long way to go especially considering some serious federal-level resistance. Nonetheless, the overall progress has so far been positive compared to what many of spectators probably had anticipated.
Kudos to all the states that have been unapologetically embracing their homegrown crypto economy for that. Arizona, for instance, has been more than a bit friendly to the innovations.
However, and paradoxically, all these developments are feeding the growing speculations about the threat posed by a cryptocurrency-powered decentralized global economy to the current world order. The concern, according to the proponents of this exposition, is of particular interest to America’s long-unchallenged role as the world’s dominant power.
The Threat is not from a Political Power
The United States has a good run as the sole superpower in the post-Soviet era. But if the dominant worldview among political pundits and foreign policy experts are to be taken into account, the unipolar world of today is on a transitional path. This new course could soon evolve as one with multiple power centers. Such a redistribution of power could see countries like China and Russia exerting an ever-increasing influence on international affairs.
While such predictions are based on real-world dynamics and not void of substance, they often ignore the fact none of the major world powers today, including China, come anywhere close to the United States in any of the criteria that defines a so-called superpower.
Uncle Sam’s unparalleled military prowess, for instance, and a firm grip on international trade make it tough for any rising power to dethrone it, at least not in the foreseeable future.
The real threat, according to some observers, comes from the decentralized, non-state economy that cryptocurrencies such as bitcoin promise to deliver. And judging by how this still relatively nascent economy has grown over the past decade, it’s hard to rule out the possibility of cryptocurrencies emerging as an alternative to the primary global reserve currency.
If and when that happens, the consequences will be far-reaching for the current centralized global financial power of the US.
There are two fundamental traits tied to all major cryptocurrencies that make the challenge seem far more real:
- All major cryptocurrencies are politically neutral in the sense that they’re not issued or directly controlled by any state,
- They are fundamentally non-inflationary (or disinflationary), which makes them a kind-of ideal candidate for playing the role of a trusted reserve currency.
As such, it is very much within the realm of possibility that the growing clout of cryptocurrencies on individual investors, states, and corporations will eventually diminish the perception of the US as a lasting financial power.
From there, it’s a matter of time till a dominant cryptocurrency with universal appeal emerges as the global reserve currency. Among other things, this change of heart will also raise the cost of borrowing, which in turn, could further worsen the United States’ heavily indebted position.
And finally, as the US begins losing its economic clout, it will be untenable for the dispensation of the day to take punitive measures such as sanctions, freezing of assets, and embargoes against states or entities that do not “fall in line.” Of course, however plausible, these are only hypothetical scenarios.
Crypto Needs to Overcome its Own Problems
Perhaps we shouldn’t ignore the fact that cryptocurrencies have their fair share of problems too. These were made glaringly evident from the unprecedented speculative bubble we witnessed towards the fall of 2017.
But having stated that, even if the cryptocurrency boom eventually collapses in itself for one reason or the other, the underlying technology will remain relatively unaffected.
That essentially means that the crypto economy will not just disappear into the night. At worst, the digital currencies (in their present form) will perhaps diminish temporarily and evolve into something more resilient and suitable for real-world use.