Disagreement came to the global financial system when the control over reserve currency became a matter of privilege rather than responsibility. That struggle has since become a morass of monetary expansion and conflict as states have pursued their own, often incompatible currency goals. The battle of the currencies has left widespread financial instability in its wake, weakening the state-centric currency model that ruled the monetary order for the past century. Now, a different type of money — digital currency — is making a play to become the new standard. If successful, the politics of money could radically change, and with it, the power of states themselves. And though the U.S. dollar has reigned supreme for decades, its primacy and its stability are no longer guaranteed.
The real war being waged is between the political forces of centralized money and the market forces of decentralized finance. This war has been waged for centuries, if not millennia, and it has always pitted the sovereign's imperative for money nationalization against the market's imperative for monetary innovation. Since the first half of the 20th century, the forces of centralization have emerged victorious, placing the control of currencies firmly into states' hands. But now this model is failing, and it will continue to fail as long as states keep accumulating debt and printing money. The rise of regional and non-state actors, coupled with digital technology's subversive assault on national currencies, will only put greater pressure on a system already buckling under the weight of reckless fiscal and monetary activism.
States that wage currency wars are all the more susceptible to these new market forces seeking a share of monetary influence. Their disruptive presence could profoundly affect the world's monetary policies, banking systems, political stability, business cycles and so much more. If the market-based currency revolution is here to stay, what will the world it brings about look like? Though it is a difficult question to answer, one conclusion is clear: The future of the U.S. dollar, long the world's dominant currency, is far from assured.
Editor's Note: Today’s Graphic of the Day was repurposed from an analysis authored by ETM Analytics, an economic and financial advisory firm. The analysis contained herein reflects the views of ETM and not of Stratfor.
