The arguments for and against this really come down to a few simple system dynamics. As a small, untrusted county you can:
- Print your own currency, which gets devalued due to inflation from lack of trust or worse yet, is attacked by larger nations. - Accept the USD as your currency and deal with illiquid periods that ravage your economy ("America sneezes and the third world gets a cold."). This needs more detail than I want to go into, but just imagine in 2008 when the credit system froze up, you needed dollars to pay your dollar denominated debt. If you're in the USA, you print. If you're elsewhere, you blow up. - Run parallel currencies, so during illiquid periods you don't have to live with the USD. The problem is that this will cause the bad currency to drive out the good currency. - Run a national currency pegged to an "index" (SDR) of currencies. You have all the downsides of the USD while adding a massive layer of complexity not really supported in the current system. This seems likely where we are going as a world. - Create a digital currency with well understood "printing" rules of your own or put yourself back on a gold standard. There are trade issues created by this sort of system, but it would be a reasonable move if you can afford the resources to build the crypto and/or secure the gold.
In effect, you have a small number of variables to optimize for: Liquidity, Inflation, Sovereignty, Trust, Options, Complexity, Dependents Ultimately being a sovereign nation doesn't mean you are trusted. Using someone else's money increases trust and decreases resource needs, but it comes at a cost of liquidity. Using a basket of currencies increases liquidity but at the cost of complexity Having your own currency gives you liquidity (if it isn't rules based), but no one trusts it and thus it inflates. Having a rules based currency reduces options (e.g. Keynesianism) but increases trust. There is no system without downside otherwise we'd all be using it. All of these elements seem pretty clearly defined in the structure, but there are elements that are less clear to me.
Adopting bitcoin decreases dependents on other networks (e.g. IMF) due to its decentralized nature. That means if anything goes wrong, you will be made an example of, thus hit pieces will be written warning off this kind of behavior. If the IMF/USD network effect is strong enough to prevent this breaking of the existing system is an open question. On the other hand, with two currencies, you'd almost think the US would want bitcoin to win since the general rule is the good money is pushed out by the bad (e.g. I want to HODL good money and give you worthless money so I will always spend the worthless money). I'm not sure exactly how that element of the dynamic will work and what is a good or bad sign for the current global order.
Liquidity,Inflation,Sovereignty,Trust (Score:1)
The arguments for and against this really come down to a few simple system dynamics. As a small, untrusted county you can:
- Print your own currency, which gets devalued due to inflation from lack of trust or worse yet, is attacked by larger nations.
- Accept the USD as your currency and deal with illiquid periods that ravage your economy ("America sneezes and the third world gets a cold."). This needs more detail than I want to go into, but just imagine in 2008 when the credit system froze up, you needed dollars to pay your dollar denominated debt. If you're in the USA, you print. If you're elsewhere, you blow up.
- Run parallel currencies, so during illiquid periods you don't have to live with the USD. The problem is that this will cause the bad currency to drive out the good currency.
- Run a national currency pegged to an "index" (SDR) of currencies. You have all the downsides of the USD while adding a massive layer of complexity not really supported in the current system. This seems likely where we are going as a world.
- Create a digital currency with well understood "printing" rules of your own or put yourself back on a gold standard. There are trade issues created by this sort of system, but it would be a reasonable move if you can afford the resources to build the crypto and/or secure the gold.
In effect, you have a small number of variables to optimize for: Liquidity, Inflation, Sovereignty, Trust, Options, Complexity, Dependents
Ultimately being a sovereign nation doesn't mean you are trusted. Using someone else's money increases trust and decreases resource needs, but it comes at a cost of liquidity. Using a basket of currencies increases liquidity but at the cost of complexity Having your own currency gives you liquidity (if it isn't rules based), but no one trusts it and thus it inflates. Having a rules based currency reduces options (e.g. Keynesianism) but increases trust. There is no system without downside otherwise we'd all be using it. All of these elements seem pretty clearly defined in the structure, but there are elements that are less clear to me.
Adopting bitcoin decreases dependents on other networks (e.g. IMF) due to its decentralized nature. That means if anything goes wrong, you will be made an example of, thus hit pieces will be written warning off this kind of behavior. If the IMF/USD network effect is strong enough to prevent this breaking of the existing system is an open question. On the other hand, with two currencies, you'd almost think the US would want bitcoin to win since the general rule is the good money is pushed out by the bad (e.g. I want to HODL good money and give you worthless money so I will always spend the worthless money). I'm not sure exactly how that element of the dynamic will work and what is a good or bad sign for the current global order.