The Breakdown - Narrative Watch: The Game of Coins & The Battle Over The Global Reserve Currency

Episode Date: August 26, 2019

In the game of coins, you [replace the USD as the world's reserve currency or at least shore up your sovereign currency's position in the new global mix] or you die.  Over the last few months, we've seen China accelerate work on its digital currency; Binance launch Venus, a regional alternative to Libra; Tether (reportedly) working on a China yuan pegged stablecoin; and now, one of the world's best known central bankers has proposed a "synthetic hegemonic currency" to replace the USD as the world's global reserve currency. What does it all mean?  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another narrative watch with Misari. What's up, guys? How's it going? As every Monday, we are back to talk about the kind of the narrative that I think is most shaping what's going on in the world today. And that is undoubtedly the game of coins. So what is the game of coins? The game of coins is the idea that we are in the midst of a massive, size, re-evaluation of how the global money system is going to work. What our global reserve currency is, what currency people use day to day, and there's a battle. Will it be some stable

coin backed by a corporation? Will it be a new digital version of a government currency? That is the question. And last week was a major, major week and moment in the history of that conversation. So that's what we're going to talk about today. So let's go back a little bit to the beginning of this summer, you know, the undeniable context for everything going on right now is Libra, right? Libra was this incredibly powerful, catalytic force when it comes to this question of what the future of money looks like in terms of kind of a global reserve currency. So by way of example, after Libra was announced, a Chinese official, an ex-Pieples Bank of China governor said at an event that based because of Libra, China should accelerate their efforts to prepare a digital yuan, right, to counter Facebook

Libra. This is not obviously just restrained or constrained to China. We've seen obviously huge interest in the U.S. or from the U.S. around figuring out just what the Libra is going to mean in terms of the dollar status. The difference in the U.S. of course is that the U.S. dollar is the global reserve currency and that it kind of, it's the incumbent, right? China is not. TRIA is one of the insurgents. This was followed by news that China Central Bank actually had accelerated efforts and that after five years of research and development from a project that started

in 2014, they were close to launching an official digital currency. This was just a couple of weeks ago. We saw this at a like a closed room kind of meeting of Chinese officials. They said this, right? So again, we're seeing an acceleration of efforts as it relates to having a central bank digital currency from China. Now China is obviously the specter that David Marcus referenced a lot in his presentations to Congress and to the House, or to the Senate rather, saying that if we don't do this, i.e. Libra, if they don't allow Facebook to do this, then someone else will. That someone else was very clearly meant to be China. Now, this past week, got even more news on this front in this game of coins, right? So on Monday of last week, so a week

ago today, and we talked about this on the narrative watch, Binance announced Venus. And what we talked about last week was how much Venus feels like kind of designed to be the antithesis of Libra, right? If Libra is this external force coming in, you know, on Zuck's horses to take away your power to print money, what Binance was basically saying with Libra was that, that we will work with local governments to effectively digitize their own currencies. And you've got to think that if you're a government who feels their power being, you know, eeked away on the back of the Libra Association or has this alternative option to work with a big player in crypto to build your own sovereign digital currency, that second option has to be interesting,

at least. But that's not all the players in this space because just a couple days later, we heard that Tether is going to issue a new stable coin CNHT pegged to the offshore Chinese Yuan. So this one was interesting because it wasn't exactly clear immediately who it was aimed at, right? A lot of the members of the Chinese crypto and entrepreneurial community seem not to be super interested in this. I think that there's a worry that it's going to raise the ire and the hack of the Chinese government even more. So anyways, all of this is going on. You've got finance and many, many others going to governments and saying,

here's a tool to help you issue central bank digital currencies. You have China and other central banks, we heard about Rwanda looking into this, researching this the other day. The Marshall Islands, Bermuda, all of these places are looking into central bank digital currencies. So that's another set of actors. Then you have the actors like Tether that's been in the space for a while who are pegging their own stable coins to those currencies, not in an official way kind of going around the system, providing this additional force. And again, all of this is happening right now in large part because of Libra, I believe. Libra is the catalytic force.

And there's a reason for that, which is that nothing could so say to the world, particularly the world's governments, that Libra is and it's two, or that, Facebook and its two billion members are a political force like saying that we're going to print our own money. Probably the only thing that they could do to more encroach on political governmental territory would be to say of our two billion members we're going to raise an army. It's just a huge catalyzing force. And this has been under discussion what this force means for a while. So one of the people who's been kind of at the epicenter of the connection between the global macro narrative on the one hand and the Bitcoin narrative on the other is Raul Paul, who runs Real Vision, which is kind of like a Netflix but for financial content. And he was on the Hidden Forces

podcast a couple weeks ago. And the thing that he was talking about was that the central disruption of Libra as he saw it was in fact this idea of a basket of currencies that it was backed by, that it was not actually pegged to a single currency, the dollar or the yuan or anything else, but that it would be connected to a basket of currencies. And that was a huge point of power shift for him. And so the Hidden Forces podcast explored that in more depth. And it's really kind of part and parcel, I think, of a larger conversation going on as well, completely outside of crypto, which is currency wars, right?

So effectively, we live in a situation now where as Trump accelerates the trade war, it's becoming and devolving into a currency war. And in a large way, the idea of a currency war is to basically make your currency somehow less valuable so that other people flock to it. And this is, you know, Trump accused China of doing this. He's pushing the Fed to do this more. And it's interesting because we have a U.S. president who on the one hand is talking about the kind of incredible strength of our economy, but is actively trying to devalue the dollar. And right now, it's weird times, right? The dollar is sort of. super strong and keeps getting stronger as the rest of the world's economies kind of look even weaker by comparison. So you've got this currency war background. And then last week at the Kansas City Fed

every year hosts a gathering of central bankers and other concerned parties at Jackson Hall, Wyoming. And there was a remarkable speech by the Bank of England governor Mark Carney, who, if you remember, was actually one of the people to speak pretty positively about Libra. He was one of the people that Facebook actively engaged with as they were planning Libra before it was announced. And so, as you can see here, he kind of proposed a, he effectively argued that the central banks should make their own Libra, that they should combine to build their own version. So if you look at his exact speech, I think a key moment is here. Any unipolar system is unsuitable to a multipolar world. So this is a huge deal, right?

TUR really summed it up in a tweet here. He says, in layman's terms, he's saying technology has the potential to destroy the dollar's network effect. I've never heard a central bank figure say this. So TIR Demeaster, for those of you who are listening is who I'm quoting from a thread that he did yesterday. And to me, really, the most poignant piece of this whole thing is this particular section or this tweet.

He says, in my opinion, this is the beginning of a central bank counter-reformation. The 10-year success, persistence, and irreverence of Bitcoin is provoking a reaction, which translates in these calls for openness, reform, and renewal. So, TUR is kind of putting it down to Bitcoin more than Libra. And I think that actually what's happening is that you have this joint forces. You have two poles right now between which the central bankers of the world and the governments of the world are kind of finding themselves uncomfortably placed. On the one hand is Libro, which as we've talked about is this incredibly destabilizing, kind of catalyzing force in some ways just because of the sheer size and scale of it. And because it is controlled by Zuckerberg, right? On the other hand, you have this thing which despite years and years and years of prognostications and pronunciations of its death, of its impending doom, of its irrelevance, continues to be relevant, continues to build and

grow and attract more people. It is a great sucking sound from the global, traditional, controllable economy in a way, and that is its own challenge, right? In the one hand, you have something controlled by someone you don't want to have control in Libra and Zuckerberg. On the other hand, you have this thing which feels fundamentally uncontrollable, and perhaps less scary at this point, but still an unignorable force. In the middle, you have central banks trying to figure out just what the hell they're going to do next. And that is where I think the game of coins is going to play out, is you have these two polls. You have the extreme control by an oligarchy of corporations led by Zuckerberg, who has shown over and over again that he will do pretty much whatever

he wants to do, and Facebook will do pretty much whatever they want to do, despite and in around and in spite of governments. And then on the other hand, something that is this fundamentally new phenomenon, which is an uncontrollable, leaderless, you know, companyless movement that is just totally transforming what people think money can be. In the middle, you have everyone trying to compete to figure out what's next. And I think that's where Mark Carney's speech comes. Now, in terms of what it actually means, in terms of its likelihood to turn into anything real, that's a bigger question, right? Mark Garnie Carney is on his way out as a bank of a in the governor. He was passed over for an IMF job. There's a lot of good reason for him to put

himself in the center of a conversation with a controversial point of view. It doesn't necessarily seem like there's a lot of will for what he called a synthetic hegemonic currency. By the way, let's pause on that name for a minute, a synthetic hegemonic currency. It's not often that you see people use the word hegemony in that kind of black and white terms. And in fact, actually harkens back to what the Binance Venus narrative said, their Chinese announcement said it's Binance's dream to break the financial hegemony and reshape the world financial system. So anyways, there's good reason to think that that's not necessarily, that SHC and this call that Carney made for a synthetic hegemonic currency, it's not like

this is happening right now. It's not like all of a sudden there's all these acolytes in government who want this to happen. But it's now on the table. It's now a point of reference. It's now been reported in news outlets around the world. It's now a major agenda item. And all of this is just to reinforce the point that we are now in the Game of Thrones. There will be a shift in the world order of how money works. And it could be that the dollar remains at the center of it, but it's not going to without competition. And if it does, it's likely going to be through aggressive means that it stays there. This is pretty much one of the central political and economic issues of our time, I think.

And it's accelerating and it's heating up. And you better believe that to the extent that the world economy does what most people seem to be thinking it's going to do over the next 18 months to 24 months, it's going to get even more big. So that's the narrative watch for this week. It's kind of the narrative watch for our whole lives right now. This is maybe the meta overarching narrative watch that we should be keeping track of is how people are talking about what the future of the global economy looks like in terms of the base layer of money. So anyways, that's it for this week. We will probably not be back next week. It's Labor Day in the U.S., so I will plan on seeing you when September and the fall are fully underway. Peace, guys.