Money and Changing World Order

The social construct and consensus around the concept Money is very fascinating to me. The whys and hows of it. Over past couple of months, I have gained some exposure to the economics of it. But this specific write-up is a mixed bag and a random one trying to connect the dots.

This write-up is my perspective into the interconnection of Money<>Crytocurrency<>WorldWar<>WorldOrder.

Thanks to Ray Dalio, he recently published a concise version of his take on Changing World Orders. Pure gold content.

Interesting concepts about Money:

There are 2 types of Money:

  1. Fiat Currency - Which does not have any intrinsic value to it. Which are not backed by any commodity like Gold, Silver etc. They are just numbers created by private bank. Ex: USD, INR
  2. Commodity Money - Which are backed by a physical commodity like Gold. Ex: USD untill 1971 (was backed by Gold until Nixon Shock)

Money in our economy purely works based on our faith and consensus. Cash is an asset to the one holding it, and a liability to the central bank at the same time. Fascinating isn't it?

Cryptocurrency is more similar to Money than we think?

When Ray Dalio was speaking about fiat currency and its design, It got me thinking about crypto-currencies. They are also:

  1. A social construct
  2. No Inherent value like fiat
  3. Consensus on its POW or POS instead of human faith.
  4. Regulated by the mining network like central banks. (Simplified)
  5. And obviously divisible units and can be recorded as blocks like ledgers.

This is an extremely simplified comparison (Very similar to Prof Gary’s Analysis at his MIT course 15.S12). But this does make a point, if there is no intrinsic value to a currency why maintain it manually? Why not adopt a crypto-currency. (okay, cryptocurrency might need some of the current monetary system to control the inflation, deflation etc.) And there are multiple reasons to this which is actually discussed at the MIT 15.S12 course. But that’s a story for another day, once I actually complete that course! But the point is, its very logical for human kind to shift to a blockchain based digital money. At the same time, they way Money is regulated by central banks for controlling Inflation, deflation, recession and multiple other economic phenomenons is mind boggling. And I am not sure, if such methods will be possible in a Cryptocurrency regulated country. (A lot of exploration left in this front!)

Changing World Orders:

Okay let me deep dive into the Changing World Order now. According to Ray Dalio, The world order has its own cycle - very similar to macro-economics cycle. World-Order is basically the country which is considered as the most powerful (This happens mostly after a War). After World War2, in 1944 at Bretton Woods agreement, Dollar was established as the Worlds Leading Reserve Currency making US the top of the world order.

Some of the specifics, based on his life-long study and resource:

  1. A world-order lasts for ~250 Years with 10-20 years of changing period.

    Changing World Order by Ray Dalio

  2. Based on last 750-800 years of study, Ray Dalio has found this cycle to repeat with very similar circumstances:

    1. Excessive Money Printing (Way of Quantitative Easing)

    2. Wealth Gap

    3. Rising Rival Power

  3. And Ray dalio calls this the Big Cyle:

Ray Dalio’s study of Countries included mostly 8 Parameters:

  1. Education
  2. Innovation and technical development
  3. Competitiveness in global markets
  4. Economic Output
  5. Share of world trade
  6. Military Trade
  7. Power of financial centre for Capital Market
  8. Strength of currency as Reserve Currency

Below is a simplified version of Average of above metrics.

Based on the Ray Dalio’s study of the Rise and Fall of nations.

But Its difficult to unsee the near-decade we might be entering of potential Changing world order.

Recently for Covid-19, USA feds printed almost ~$4 trillion dollars. Almost a fifth of ALL US dollars were created in 2020. China’s economic output and trade is almost same as USAs. Indication for Changing World Orders? Can’t unsee the uncanny pattern pointed out by Ray Dalio. Plus Russia’s invasion on Ukarine, where America and Russia/China are on opposite sides is no less than a Potential WorldWar3.

Connecting the Dots:

Tying up all the cues, Money is a social Construct very similar to Cryptocurrency. WorldWar and Economic crisis leading to changing World Order, where Global Medium of Exchange i.e The Reserve Currency will change. But Adoption of cryptocurrency, could help ease out impact on common people and potentially can lead to more sustainable economic system? Not sure about this last poing.

In the current world where, folks are still researching the impact of Quantitative easing on an economy- positive or negative. It looks like the monetary system has a lot of tech-debts attached to it! Its difficult to speculate the impact of full fledged acceptance of cryptocurrency.

Take Outs:

  1. Our day to day money are not backed by Gold, rather they do not have any intrinsic value.
  2. Private Banks create money everyday by issues loans. That’s the biggest source of inducing more money into the economy.
  3. Every ~250 years, the world order changes. After Dutch, Britain, the power of US dollar is in the verge of decline.
  4. Printing Money is very similar to Quantitative easing. Where Central bank don’t physically print money, rather they swap asset with private banks in order to infuse more money.
  5. Current Monetary system has a lot of loopholes to stir it up! Which leads to decline of power and uneven wealth distribution. Cryptocurrency might be able to solve some of it, atleast the deliberate-issues around the Monetary system.

Learning Resources:

  1. Ray Dalio, Changing World Orders (Must Watch): (Pictures Used in the Blog are screenshots from this video)
  2. MIT OCW Course for 15.S12 ->