Big Historical Perspective: The Rise and Fall of the World Reserve Currency and the Opportunity of Bitcoin

Ray Dalio, the founder of the world's largest hedge fund Bridgewater (also the author of "Principles") recently published an article on the study of macro history. He tried to explore the reasons for the rise and fall of great powers in the past 500 years and the historical trend of cycle replacement. From his macro-historical analysis, we can see an important point: each period of power is accompanied by the rise of its currency. During its dominance, the country’s currency becomes the world’s reserve currency, and after its peak, its world’s reserve currency The status of currency tends to decline. Of course, due to certain network effects and historical inertia, its disappearance will lag behind the relative weakening of the leading country's economy. Over the past 500 years, there have been several dominant states at various times: the Netherlands, Great Britain and the United States. At each stage, their currencies became the world's reserve currencies along with their strong economic fundamentals and military might. In the history of mankind, so far, there has not been a dominant force that can continue to be the first. Any dominant force has replacements. As Dalio pointed out in his research on the history of the past 500 years, the Netherlands, Britain, and the United States were the dominant powers in the past 500 years, but they all have a tendency to replace. Why is there a tendency to replace? With the establishment of the new world order, relative peace and prosperity, productivity growth, and debt expansion, these promote the rise of the dominant force until it enters a peak period. Then the maintenance cost is too high, facing increasingly fierce competition, the marginal income declines, the debt bubble bursts, the economy goes down, the country begins to print a lot of money, the social gap between the rich and the poor widens, and social conflicts and even wars are brought about. Finally, the leading force declines, forming new world order. According to Dalio's explanation, the replacement of this big cycle seems to be a historical necessity. (Blue Fox Note: The following information on historical cycle changes refers to Dalio’s article) The Dutch Guilder is the first worldwide reserve currency. It accompanies the rise of the Netherlands as a world reserve currency. Before the guilder emerged as a world reserve currency, Spain was the dominant economic force in the Western world at that time. The Netherlands became the dominant power in the Western world from 1625 to 1780, and 1650 was the peak period of the Netherlands. The Netherlands was the richest country in Europe at that time, its per capita income was twice that of most European countries at that time, and its literacy rate was twice the world average. Dave Ripley: The future of cryptocurrencies will be based on self-regulation and clear regulatory standards: Jinse Finance reported that the new CEO of Kraken, who is about to succeed Jesse Powell as CEO Dave Ripley, said that Kraken is a proponent of self-custody and that cryptocurrencies The future will be based on self-regulation and clear regulatory standards. According to Ripley, the relationship between centralized platforms and regulators may change due to the advent of FTX. He said FTX founder SBF’s close ties to regulators are not conducive to the idealization of DeFi and cryptocurrencies. [2022/11/24 8:02:57] The strength of the Netherlands is due to its developed education, advanced shipbuilding technology, and most importantly, the rise of Dutch capitalism. The Netherlands invented the first listed company, which is The famous Dutch East India Company. In addition, the Netherlands created the first stock exchange in 1602 and established the most developed debt market in the world at that time. This greatly increased the economic and military strength of the Netherlands. At its peak in the seventeenth century, the Netherlands accounted for about 25 percent of the world's major inventions and one-third of international trade. The Dutch investment market is full of innovation and profit opportunities, attracting a large number of investors. At this time, Amsterdam has become the world's financial center, and the Dutch Guilder has become the world's first "world reserve currency". The Netherlands paid dearly to maintain its dominant power until it was no longer profitable. During this period, the United Kingdom challenged the Netherlands, and there were various economic conflicts between the two sides. For example, the British law stipulated that only British cargo ships could transport goods to the United Kingdom, etc. ?). There have been many wars between the two sides. At the same time, the Dutch debt increased, internal conflicts increased, and its military power was declining. From 1780 to 1784, Britain launched a war against the Netherlands again. Britain won the victory, and the Netherlands went bankrupt and heavily in debt. The Dutch Guilder declined along with the Dutch Empire. The decline of the Netherlands began with its overextension, which required increased spending to prop up its great empire, which led to increased debt. At the same time, it faces competition from other countries such as the UK, causing its overseas revenue to fall. With the enhancement of investment yield in the UK, people will transfer funds from the Netherlands to the UK for investment. Brent crude oil fell below $100/barrel, down 6.03% within the day: According to news on July 12, Brent crude oil fell below $100/barrel, down 6.03% within the day. WTI crude oil fell more than 6.3% on the day. (Golden Ten) [2022/7/13 2:08:48] The war between Britain and the Netherlands further exacerbated its debts, especially the Dutch East India Company suffered heavy losses. The Bank of Amsterdam tried to print money to bail out the Dutch East India Company, and savers began to The run on the Dutch Guilder led to the exhaustion of precious metals supporting the Dutch Guilder, the Dutch Guilder continued to depreciate, lost its reputation as a store of value, and finally went to collapse. Britain's rise made the pound the world's reserve currency after the guilder. After Great Britain, Russia, Austria, and Prussia won the war against Napoleon, the victorious powers redesigned the world order. This laid the foundation for the rise of the United Kingdom and gradually promoted the pound to become the world's reserve currency. The British East India Company replaced the Dutch East India Company and became the most powerful company in the world at that time, and its standing military force was even larger than that of the British government at that time. In addition, around 1760, the Industrial Revolution was born in Britain, which liberated productivity through the invention of the steam engine. Britain leads the world in terms of trade, economy, and military power, bringing Britain a dominant period of more than 100 years. London has replaced Amsterdam as the world's financial center, and continues to launch innovative financial products, attracting a large number of investors. This is exactly the same as the attraction of Amsterdam in the past. At this time, the world reserve currency is no longer the guilder, but the British pound. At its peak in the 19th century, Britain generated 20% of world income and controlled more than 40% of global exports, and the pound became the world's reserve currency. However, after 1900, Britain began to decline. Great Britain participated in World War I and World War II. In order to maintain the empire, Britain expanded the debt, while the income was diminishing. This is similar to what happened in the Netherlands. After World War II, the United States surpassed the United Kingdom in all aspects of economy, military affairs, and politics. Although in 1960 about 50% of international trade was still denominated in sterling, Britain was found to be heavily indebted while the US was in good financial shape. After World War II, the pound depreciated continuously. In 1949, the pound depreciated by 30%, and in 1967, it depreciated by 14%. Not even the Commonwealth of Nations is willing to hold large amounts of sterling. The status of the pound as the world's reserve currency can no longer be sustained, and the US dollar has become the new leading international reserve currency. Xugong Machinery established a national laboratory with 100 million yuan, and its business scope includes blockchain technology: According to the news on May 17, Qichacha APP shows that Jiangsu Xugong Guozhong Laboratory Technology Co., Ltd. was established. The legal representative is Li Suoyun, with a registered capital of 1 The business scope includes: artificial intelligence basic resources and technology platforms; software and services related to blockchain technology; artificial intelligence theory and algorithm software development; research and development of intelligent robots, etc. The equity penetration of Qichacha shows that the company is 100% owned by Xugong Machinery. [2022/5/17 3:21:13] In the middle and later stages of the British dominance, the United States was fully developed. At first, the United States copied British technology, and then made great breakthroughs in steel, automobiles, electricity, and communications. Telephone , Electric lights, and gramophones were invented one after another during this period. American power is on the rise. And Britain's relative power began to decline, Britain began to borrow heavily, and the cost of maintaining its empire became high. In the early 20th century, there were huge disputes about the wealth disparity and distribution among different countries, and economic and military conflicts occurred among European countries. These conflicts culminated in World War I, which eventually involved the United States as Germany sank American merchant ships. After the First World War, the United States, the United Kingdom and other victorious countries tried to establish a new world order through the Treaty of Versailles. However, the United States continued to choose isolationism after the First World War, and the United Kingdom continued to maintain its global colonial empire. The pound is still the world's reserve currency. But after World War I, the new world order was not established. In the 1920s, a large amount of debt was accumulated, and the gap between rich and poor increased. In 1929, the debt bubble burst again, leading to the Great Depression era. At this time, the currency increase led to currency depreciation, leading to domestic and international conflicts, and finally the outbreak of the Second World War. After World War II, the victorious countries proposed a new order again, hoping to shape a new world order based on the Bretton Woods Conference, Yalta Conference, and Potsdam Conference, one of which was to establish a new currency and credit system. At that time, the U.S. dollar was pegged to gold, while the currencies of other countries were pegged to the U.S. dollar. At that time, 40 countries adopted this currency system. The United States also owned two-thirds of the world's gold reserves at that time, and the US dollar gradually became the world's reserve currency. Britain faces the end of its colonial era and the end of sterling as the world's reserve currency. New York became the financial center of the world. Reality Labs, the metaverse division of Meta, has integrated AI start-up AI.Reverie: On December 29, Meta announced that Reality Labs, the metaverse division of the company, had integrated AI.Reverie, an artificial intelligence startup acquired in August. Meta officials pointed out that the addition of AI.Reverie will accelerate the company's ability to synthesize data for training machine learning algorithms to provide a simulated version of the real world, and then better support the construction of the Metaverse. It is reported that Daeil Kim, the person in charge of AI.Reverie, is currently the Meta engineering manager. He pointed out that AI.Reverie can endlessly provide images and videos with annotation information, and accelerate the progress of computer vision and machine learning by reducing training costs. [2021/12/29 8:12:40] In 1971, U.S. banks did not have enough gold reserves to support the U.S. dollar system. The U.S. ended the gold-anchored monetary system and entered the era of the legal currency system. The fiat currency system led to increased dollar currency debt and inflation, and triggered the economic crisis of 1980-1982. The legal currency credit system also successively produced capital bubbles in 2000 (Internet bubble), 2008 (real estate bubble), and 2019 (before and after COVID-19). Each bubble prints more money than the previous one. Economic problems lead to intensification of internal and external conflicts. The United States faces the same power crisis as the Netherlands and the United Kingdom. Although the U.S. dollar is still the main settlement currency for international trade, and the world’s debt is still dominated by U.S. dollar debt, the status of the U.S. dollar as the world’s reserve currency will depend on the fundamentals of the U.S. economy, and of course there will be a lag. In the end, the challenge itself does not come from other countries, but the economic fundamentals of the United States itself and whether the cost of maintaining its dominant position can be sustained. Judging from the history of the Dutch guilder, British pound, and US dollar as the world’s reserve currency in the past 500 years, they all have similar experiences in becoming the world’s reserve currency, and have achieved leading positions in education, technological innovation, economic mechanism, and military strength. Without the support of economic and military strength, and without a global trade network, it cannot become a de facto world reserve currency. 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It can be seen from the replacement history of world reserve currencies in the past 500 years that countries and currencies are highly integrated. The status of the world's reserve currency is a natural externalization of a country's economic and military dominance. In this context, state and currency are not separate relationships. According to Dalio's analysis, the current world may have entered a new replacement cycle. Coincidentally, the former US Treasury Secretary Paulson also published an article "The Future of the Dollar" in the US "Foreign Affairs" magazine. , it proposes that the US dollar's position as the world's reserve currency may face challenges from the renminbi. So, what does this have to do with Bitcoin? From a historical point of view, any replacement of the world's reserve currency is not something that can be completed in three to five years, but can take decades or even hundreds of years to complete. Today's United States is printing and issuing a large number of dollars, resulting in a large amount of debt, which is similar to the historical scene. The balance sheet of the Federal Reserve has exceeded 7 trillion U.S. dollars. At the same time, from a fundamental point of view, although the United States is still in a leading position in terms of economy, technology, education, and military, it is still strong. However, the leading force of the U.S. economy is relatively declining. From 1960 to the present, its share of the world’s GDP has dropped from 40% to 25% today, while emerging economies are accumulating strength, especially China’s rapid economic growth. (From Ray Dalio's "The Great Cycle of the Last 500 Years") The current US dollar is still the world's main reserve currency, as high as 79.5% of world trade is still settled in US dollars, and 84% of the world's non-domestic debts are US dollar debts. About $100 trillion of debt is denominated in dollars. Due to the demand for repayment of US dollar-denominated debts, the US dollar has not only not produced inflation during the period of crazy issuance, but also has insufficient liquidity. Since the demand for dollars is rising, the dollar will continue to rise. A rising dollar makes it more sought-after, more scarce, and exacerbates the debt-payment crisis. Increased demand for dollars has led to US stimulus through fiscal policy. But this additional issuance system cannot be sustained in the long run. Moreover, in the end, the over-issue of money will lead to inflation. Not only will it lead to inflation, but it will also increase economic inequality.

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