The Twilight of Dollar Hegemony

Perhaps when we look back at today a hundred years later, we will be able to see more clearly the turning point when the dollar hegemony began to decline. History is often like this, starting gradually and completing suddenly in the gradual process. The turning point is the emergence of countless micro and macro things, and the people who were in it at the time were unaware of it, and their thoughts still remained in the inertial thinking of the old era. It will not be until several generations later that things will gradually change, and then they will have a sense of sudden enlightenment about the great changes in history in the past.

The lighthouse is going out and dusk is coming. When the sun rises again in the east, shining brightly, people will no longer need the lighthouse.

“I disagree with your opinion, but I will defend to the death your right to say it” was extinguished by the widespread deletion of posts and banning of accounts on social media (Twitter, Facebook, etc.) and video sites (YouTube, etc.).

The "sacred and inviolable right to private property" has been extinguished by the freezing and confiscation of private property in the name of humanitarian sanctions, as well as the plundering of a wide range of civilian account balances (including crypto asset accounts).

"Sports without borders, art without borders, technology without borders" has been extinguished in the politicized expulsion, ban and embargo in the name of trade war and sanctions war.

“The US dollar is the safest asset in the world,” but it has been extinguished by repeated account confiscations, wanton misappropriation, and centralized hegemonic practices of cutting off international payment channels.

If the rules of the world become that a provider and manager of public goods can use the super power in their hands to harm users as long as they find a high-sounding reason, then no one will have any sense of security, because we all know the saying "If you want to accuse someone of a crime, you can find a pretext for it."

The US dollar is such a financial public good.

The United States is a country that provides such a financial public good.

It is precisely because the United States assumes the responsibility of providing a financial public good such as the US dollar that people all over the world accept its hegemony and bear the latter as a price for the former.

Globalization since World War II has determined that the world needs the emergence of a financial public good such as the US dollar, which also requires a country that is willing and able to provide it. Broadly speaking, the US dollar exists as a safe asset, and safe assets are the most important financial public goods provided by the United States[1].

The so-called safe assets refer to assets that are insensitive to information, that is, there is no information asymmetry problem, or in other words, the debtor's payment commitment is completely credible and the asset holder does not need to collect any additional information about the issuer.

The most important function of safe assets is storage of value.

In 1912, the great banker Morgan said at a hearing that only gold was real currency.

From 1914 to 1918, after the First World War, the United States had taken off and Britain was in decline, but the pound sterling was still the main reserve currency in the world.

In the interim period of global hegemony transition, the unstable world order, the global economic depression and the increasingly scarce world currency are intertwined and mutually causal. The shortage of safe assets, a global financial public good, has shaken economic stability and world peace and security.

In 1933, the 6102 Act was introduced. The US government plundered the American people's gold and replaced it with US dollars. Gold, the real currency and natural public good in Morgan's words, was declared defeated by power.

From 1939 to 1945, after World War II, the United States had become the hegemon. The reconstruction of the global order was centered on the United States. The Bretton Woods system was just a small piece of the puzzle in the global financial order.

The U.S. dollar has completely surpassed gold in terms of portability, ease of use, and transmission costs, completely driving gold off the stage. Since then, the U.S. dollar has become the world's most important reserve asset and safe asset, and the U.S. dollar hegemony and the financial hegemony built on it have emerged.

However, the Triffin Dilemma doomed the dollar-gold peg to failure. In 1971, the Bretton Woods system collapsed as the United States unilaterally broke the contract and lifted the peg between the dollar and gold.

The dollar is unpegged from gold, but the US hegemony remains. The US can continue to provide this public good to the world, and everyone can still pretend that it is still a safe asset - although the US's subsequent behavior is constantly eroding its qualifications as a safe asset - because without it, everyone really can't find another alternative to use.

2022 may be another 1933. Although the world has been suffering from the tides and circulation of the US dollar over the past half century, after all, $1 is still $1, and everyone can accept it. Now, the United States has personally confiscated the US dollar, and the so-called permanent neutral countries have quickly taken sides. As a safe asset, the US dollar has lost its most important quality - security.

When hegemony acts recklessly, it is the day of its decline. The more ferocious it appears, the more it exposes its inner weakness.

Economists and financial experts are exclaiming that we will have no safe assets available to replace the dollar.

They forget that in 2009, a groundbreaking safe asset, an alternative to the US dollar, was invented.

This invention combines the advantages of gold - natural scarcity, decentralization, and non-over-issuance - and the advantages of the US dollar - portability, ease of use, and digital transmission, while overcoming the disadvantages of gold - inconvenience of carrying, high security costs, and susceptibility to looting - and the disadvantages of the US dollar - centralized control, arbitrary over-issuance, and confiscation.

It is completely transparent, trustworthy, never defaults, and eliminates all information asymmetries. It is the best safe asset and value storage in human history to date.

This invention is Bitcoin.

In the twilight of the US dollar hegemony, we will see countless funds seeking new safe assets as a shelter, pouring into Bitcoin like a tide, magnificent.

References:

[1] Shao Yu, Chen Dafei. “The Crisis of Hegemonic Disintegration: A Framework for Understanding the Russia-Ukraine Conflict and the Reconstruction of World Order”.

(Official account: Liu Jiaolian. Knowledge Planet: reply “Planet” to the official account)