Why the US Government Hates Crypto?
Most people have no idea why the US government is so aggressively against the concept of a global crypto-currency.
They laughed at Bitcoin initially, then when Libra was announced in June 2019, they attacked it at a speed normally given to national crises. Within a couple of weeks, Facebook’s bosses were hauled up in front of the full House Finance committee and told to stop immediately. Along side this, the French and German Finance ministers also attacked it.
As the German philosopher Schopenhauer said, “All truth goes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident.”
To understand why the US government hates crypto, you need to understand Foreign Exchange Reserves.
The latest statistics out of COFER (Currency Composition of Official Foreign Exchange Reserves) has revealed that the US Dollar remains the world’s strongest currency as it accounts for 61.8% of the $10.9 trillion in allocated foreign exchange reserves for Q1 2019. So $6.74 trillion is held by other countries in their foreign exchange reserves.
Foreign Exchange Reserves are held by central banks to facilitate global trade, investment, maintain their currency value and build confidence. Think of it as their ‘backup funds’.
Since the Bretton-Woods Conference after World War Two, when global currencies were fixed to the US Dollar (which was backed by gold), the goal of government bankers has always been stability. Economies grew and lost their peg to the US Dollar when Nixon cut the gold standard link. Yet, globally the US dollar is seen as the most powerful global currency and therefore, it is held by governments in their reserves.
This dollar dominance made sense when the US economy dominated global trade and its dollar was strong, but it is not true today. In fact today, the US does less than 20% of global trade, matched by the EU and China.
So what actually happens?
A country holds foreign reserves in US dollars by owning US Bonds, known as Treasuries, rather than the actual notes, because they earn an interest rate. These bonds are a US government debt that the US Treasury issues to fund the operations of the US government as it always runs in deficit.
So, the Chinese economy helps fund the US deficit. In fact, given the US $22 trillion debt and $1 trillion deficit and the fact that China holds approx $2 trillion in US Bonds, it funds approx 10% of the US debt.
Many claim that China will dump US dollars in order to harm the US economy, but this is not considered credible because reserves are important to exports, especially if there is a trade imbalance and the US-China trade deficit was $419 billion in 2018. This is why China is desperate to finish the trade war with the USA, as it has the most to lose.
The REAL Problem
The US government hates the idea of the US dollar losing its ‘global currency’ position because all trade is balanced in US dollars. 90% of the $1,500 trillion foreign exchange market is in US dollars. $600 billion or 65% of all US dollar notes are used outside of the US, especially in Eastern Europe and Latin American, as ‘hard currency’. Add that to the foreign exchange reserves and it means that ALL global trade and economy is based on US dollars. It means that transactions must be verified by the US dollar banking network of banks like JP Morgan and Citibank, who charge a fee — which is like a tax on global trade. You have to buy petrol in US dollars or commodities in US dollars. To raise money internationally, it is normally based in US dollars, so you are pushed towards Wall Street to the people who control the US dollar.
The US Dollar is how the US economy, especially banking and government, can influence and tax the world economy. In the past it was the price for security and stability, gladly paid by the Western world and developing economies, yet it means nothing today.
A Global Crypto
Another government currency will never replace the US dollar because normal government-issued fiat currency must be controlled by a bank cartel called a ‘cleaning system’. They keep track of the money so there is no ‘double spending’ on the same currency. Crypto-currency is based on a blockchain database which solves the double spend problem.
A new globally accepted crypto-currency or several of currencies could easily replace the US dollar. The blockchain would ensure the currency is trusted, the ease of transfer and storing would be based on crypto-wallets which are so easy to use. It would be a new global payment system.
Crypto wasn’t a threat to the US dollar-based global money system when it wasn’t considered credible; when Bitcoin was slow and expensive to transfer. Then Facebook launches Libra and suddenly it has the speed, cost and credibility to replace the US Dollar. The US government stopped laughing at crypto — it had become a threat. They hauled the Facebook bosses in front of them and said ‘stop!’ Their problem is that Libra is not based in the US or controlled by Facebook.
But now the genie is out of the bottle.
The Chinese government is launching its own crypto and If it’s not Libra, Chinese, Bitcoin, it will be someone else.
So the US Dollar will stop being the global currency. Governments will stop holding excess US dollar reserves, holdings will drop from 60% to 20% and suddenly the US will have to either eliminate their $1trillion annual deficit by cutting subsidies or their military spend. Or find $4trillion worth of debt funding somewhere in a market that doesn’t trust the US any more.
This is positive for the rest of the world. Without the US Dollar tax, the East especially will be free to develop as it wishes.
This is why the US government will declare war on crypto.
What do you think?
