Could the Entire World Operate on One Cryptocurrency?

Ancient Currency and Bitcoin

In the past, various kinds of metals were used as currency, representing various units of account. However silver and gold were considered particularly valuable and were widely accepted in most corners of the world. These two metals went on to dominate all units of account and arguably, still do today in some capacity. The value of these ancient units of account soon became contingent on their measurement of purity. How much of a given kingdom or empire’s currency was made of genuine gold or silver would determine its exchange value. As time passed, this became increasingly difficult to determine for the average person as people found a way to replicate similar looking metals to pass off as gold or silver.

Concurrently, cryptocurrency seems to follow a somewhat similar pattern with regard to adoption. Bringing to attention the top two coins currently listed on all crypto exchanges by market capitalization, Bitcoin and Ethereum seem to resemble modern-day gold and silver.

One big difference between the past and present is the fact that digital currencies are much easier to create and mine than precious metals. Sure, Bitcoin and Ethereum are the most widely adopted currencies now, but let’s not forget that in the age of the internet, the option to choose what currency is considered valuable can be contested by a much larger population than ever before.

Reserve Currencies and the IMF

Given the history of money and its lindy effect, I think it is safe to say that there will likely never be a time when we no longer require money to operate in this world. However, the money that we do perceive to be the reserve currency is very likely to change based on the evolution of currencies in the past.

Can you believe Portugal’s currency once held the status of being the world’s reserve currency? Seems pretty far-fetched today. As seen in the graph pictured above, reserve currencies have a consistent life span ranging between 80 and 110 years. Cryptocurrency could be next up to bat in the information age. It’s not entirely outside of the realm of possibility that the largest financial institution in the world, the IMF, could establish the next reserve currency. Cryptocurrency isn’t off the table for such a thing.

Even in the case of an IMF-backed cryptocurrency, I’m not sure it would dominate all crypto markets. An IMF coin would have to be exchangeable with fiat and in the case of El Salvador, Bitcoin. It is also perceivable that an IMF coin may only be held by individual governments, like the gold in Fort Knox for example. While the IMF is a worldwide institution, it doesn’t interact with retail investors or traders and has far more to do with the economic surveillance and stability of governments. In addition, sovereign states are simply too staked in the value schemes of their own currencies for them to willingly transfer into any sort of UN currency. There’s no reason to give up the financial authority they currently have to a global institution.

Competing Currencies

One single currency, crypto or otherwise, dominating the entire globe would require unprecedented cooperation that, perhaps cynically, I do not expect to occur. We only got onto a USD standard because of historical happenstance. There are simply too many stakeholders involved that wouldn’t tolerate a loss in their own value on behalf of essentially handing monopoly power over to a single authority such as the IMF.

While Bitcoin is decentralized, a huge part of Bitcoin’s value is the fact that it can be considered a hedge against a given cash based currency. Bitcoin’s spikes in price in recent years have partially been because of inflation worries in the global reserve currency. If these kinds of competitive events, for better or worse, cannot occur in global markets, then private cryptocurrencies could lose a fair amount of their value. Not that we need global disasters to increase value, but entropy in markets isn’t necessarily a bad thing. Entropy in general is one of those things that is never going away regardless.

Having a single currency dominate any market would lead to an unhealthy lack of competition. It is in the long term advantage that all currencies, be they crypto or cash, have some competition to drive innovation and increase value. There’s not a lot of incentive to improve things if you’re the single monopoly holder of the only truly valuable currency on the planet.

Conclusions

Since ancient times, currencies of all kinds have been in competition with one another. Without some intense global intervention, this fact seems unlikely to change. Even in the field of private cryptocurrencies, Bitcoin is constantly challenged by other cryptocurrencies. However, it’s not outside of the realm of possibility that authoritarian states might try to ban cryptocurrencies. All cryptocurrencies that are not the product of a government central bank may be unscrupulously targeted. Such an event would certainly shake up the competitive landscape and divide citizens of the world. Not to mention that we would get to test which cryptocurrencies are truly resistant to censorship.

In the case of the IMF introducing a cryptocurrency, that one single token wouldn’t dominate all markets. It may replace the USD as a reserve currency, for better or worse, but a reserve currency isn’t necessarily used all the time in everyday transactions. Sovereign states have too strong a stake in the development of their own currencies to permit one single money to dominate the market. Market competition between fedcoins and private coins will keep crypto markets healthy, so long as authoritarian governments do not blanket ban them. Just as in ancient times, a variety of currencies to choose from will likely remain the norm.