Field Testing Crypto

CANADA

The recent debanking of protesters by the Trudeau Government in Canada this month has been a demonstration of the sort of tactic that crypto is intended to solve. While the Prime Minister may feel all powerful in having the ability to take away the livelihoods of people who disagree with the vaccine mandates, he has only created a new market of people who would explore cryptos. By pushing people into the margins, governments are going to find that the margins have been preparing for this day.

RUSSIA

Russia has been on the fence with regards to crypto. Yes, it's legal. No, it's not legal. It's somewhat legal. Recently, all of that has been settled. Russian banks are directed to provide crypto services to the public. The timing is suspicious given the actions in Ukraine.

Can you imagine what happens if NATO countries try to impose sanctions on Russia? Normally, this would severely impact the citizens of the sanctioned nation by limiting their ability to purchase foreign goods and services using the SWIFT banking system. However, having the legal means within Russia to use crypto, the more Russia is squeezed, the more their citizens benefit. I don't have all the details on what Russians can do with crypto. They may still be prohibited from using crypto to buy goods and services. But, does that mean they can't buy Euros or Dollars with their Bitcoin? At the very least, Russian citizens will be able to count on the safety of their savings.

EL SALVADOR

The hype has died down on El Salvador recognizing Bitcoin as legal tender. This was obviously a major milestone. The reason why this was such a massive move is that the World Bank and International Monetary Fund have a tendency to trap developing nations into unfavorable loans that position them to legally extract the wealth of those nations. This sort of thing is laid out in Confessions of An Economic Hitman.

By creating an alternate legal tender, El Salvador has opened up another source of capital for the nation. By buying Bitcoin from citizens who want more stable dollars, the Government of El Salvador is building up collateral that can be used to source loans from other providers than the IMF. The advantage of this is that the loans are collateralized by the Bitcoin, not Salvadoran natural resources. Worst case scenario, if El Salvador defaults on the loans, they lose their Bitcoin. The traditional way is that they would lose a portion of their exports and natural resources used to collateralize the loan. In this case, Bitcoin is a buffer between the predatory bankers and their livelihoods.

The Bigger Picture

The bigger picture in all of this is that crypto is in the process of being field tested. We do not truly know what kind of prosperity is possible for developing nations when they are freed from having to collateralize their natural resources. For example, imagine if in African nations the government could have collateralized Bitcoin for funding to pay for infrastructure rather than the oil beneath their feet. The governments can be trusted to mismanage the money. But, at the very least they would still have oil and some infrastructure rather than no oil and infrastructure they can't afford to maintain. What happens in El Salvador can illustrate what other developing nations can do without mortgaging their futures.

Something else that El Salvador is doing, besides skirting around the international money cartel, is that they are demonstrating, at a macro level, what a two-currency system can do. An inflationary money supply has its problems. Deflationary money also has problems. When we were on the gold standard, the problem was that the money supply was supposed to be representative of the the gold supply. But, it could not work. Every bank loan creates money out of thin air without creating more gold to back it. Money was supposed to be representative of the gold supply.

The logical step they took was to decouple money from the gold standard. They introduced a purely inflationary monetary system. It never occurred to them to have a dual money system. One inflationary system to be able to provide liquidity as needed. And, a deflationary system that could maintain or increase in value while waiting to be put back to work. Rather than have one money that serves two opposite purposes, we need two money systems that serve those purposes. Fiat is good for spending, for accounting, and for playing hot potato. Deflationary money is good for parking wealth.

The problem we often see is that as hard times come around, people stop spending money. They park it just in case they will need it. If, instead, they convert it to something harder than cash, that money is free to flow through the economoy whilst the hard money sits on the sideline to be converted back to cash. Velocity is not compromised as cash is kept out of savings accounts. El Salvador could be that economic lab that demonstrates what a dual-currency system can do.

And, finally, what is war like when money can't be stopped? Prior to World War I, nations dealt in gold to finance wars. The war could go on so long as there was money in the treasury, the exception being the British, who were able to shrug off the gold standard based on their reputation for honoring debts. Napoleon, on the other hand, was forced to deal in gold and silver precisely because of reputation (see British and French Finance During the Napoleonic Wars ).

It was during these times that the Rothschild banks were able to amass great wealth. In ways similar to Bitcoin, the Rothschilds were able to finance both sides of the wars in Europe. Now, imagine what happens to crypto when both sides of a war need it to finance their international trade without obstruction from the SWIFT system. Suddenly, everybody in the world who holds crypto is profiting from conflict, not just a select few.

What happens when tyrannical governments cannot keep pace with the funding received by their opposition with no way to block it?

Many of the things we see happening are unrelated. But, they are unified in that they are field tests of what is possible when capital cannot be controlled. Keep watch of what works and what does not work.

Posted Using LeoFinance Beta



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11 comments
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Thanks for pointing out that banks can create money out of nothing. It is hard to believe that no one has changed this in over 100 years. I dont quite understand the whole thing , but it seems if money is connected to debt it cant be a good thing for our country. I see your point about two types of currency. In a way real estate is like the second type you are talking about.
Great article. very thought provoking.

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We have somewhat the same ability. If you write a song or a book, for example, you can get paid royalties every time the property is used commercially. If you have a patent, you might receive a payment for every unit produced using your patent. That value is invented with every use.

Even services such as haircuts. Why is a haircut worth $14? It's a simple matter to cut your own hair. But, for some reason, we print hair that is worth income to the barber.

Similarly, banks print money by selling you $1 for $1.10 when you accept a loan for 10%. If it's a 20% loan, then you are buying $1 for $1.20.

I was, in fact, also thinking about real estate. We often talk about investing in real estate because the value always goes up. When in reality, the value stays the same. The price goes up because the value of money goes down. But, real estate is the deflationary money that parks wealth until you are ready to use it. People either sell the house to unlock cash, or mortgage it to access capital. It's something we already do, except that banks are who mostly have the cash to lend. We could, instead, mortgage a house to a private lender with a simple contract. But, most of us don't think that way.

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Can you imagine what happens if NATO countries try to impose sanctions on Russia? Normally, this would severely impact the citizens of the sanctioned nation by limiting their ability to purchase foreign goods and services using the SWIFT banking system. However, having the legal means within Russia to use crypto, the more Russia is squeezed, the more their citizens benefit

I don't think this is quite right. Sanctions means that the foreign goods can't make it into the country in the first place. The issue isn't the purchasing of the goods, it's that the goods never make it there. The citizens absolutely will not benefit if Russia is squeezed. They'll be limited to only goods that are made entirely in the country.

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We shall have to wait and see. It's a field test. We can't stop China or other bordering nations from trading with Russia. One of their biggest hurdles in trading with them has been having to deal in dollars. Another is acquiring goods, as you stated. But, a third problem is having places to sell their own goods and services.

This is principally what is harming Cuba. There aren't any physical blockades around the island. Their main problem is not having access to dollars. Their own currency is not all that valued by their trading partners, which include most of Latin America. Just as American goods can't be exported to Cuba, Cuban goods can't be imported to the USA. But, other neighboring nations, including Canada, have no such restrictions.

Venezuela, for example, freely trades with Cuba. But, Venezuela is also suffering lack of access to dollars. Cuba would be foolish to accept Venezuelan fiat. And, Venezuela would be foolish to accept cuban fiat. Fortunately for Venezuela, they have plenty of petroleum they can use for trade with Cuba. Despite the relative ease with which they could circumvent trade embargoes, it is lack of financial access that is causing these nations all manner of trouble. The petrodollar has real implications for an oil rich country.

Russia also has oil that they would have to sell for dollars, or risk selling it for a more dodgy currency. If they can't trade in Euros, what's left? It's the lack of dollars that prevents the foreign goods from being purchased. As long as there is cash, one can rely on black markets to provide.

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That Is scary where there is unlimited supply of money to create conflict.

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I have not thought this part through.

Using the Rothschild example, the bank grew wealthy while England and France became indebted. There may be a natural stop built in. For example, bonds are typically sold to finance wars. What if bonds don’t pay enough interest for people to buy them? Or, what if bonds pay too much interest to be affordable?

We will have to wait and see how crypto changes war.

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Quite thought-provoking. Given all the latest news, I can see why you are calling this a "field test". The world is watching.

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It's been interesting to hear the occasional story of how folks fleeing Ukraine were unable to get money out of the bank before leaving, but had their hard wallets with crypto so they are not without personal funding. I consider this a field test of how individuals can benefit in times of crisis from owning crypto.

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