Currency Wars Vol. 2: Bitcoin and Geo-Political Game Theory
We are entering a period in which years happen in a matter of months, and decades happen in years. As the sabers rattle, war propaganda ramps up, and the world economy lies on the brink; a global game is at play with Bitcoin, a playable card, benefitting any player who wishes to pull it from their deck.
Bitcoin has entered the geo-political fray, and when you have games with two or more players seeking their best-rational interests, you have game theory.
What is Game Theory
Intellectuals in the 1930s and 1940s had the novel notion of implementing the concept of games in the fields of economics and political science. At first, the idea was met with skepticism, but eventually, it gained widespread support.
It is widely acknowledged that PG Chambray's "The Game of Politics: A Study of the Principles of British Political Strategies" was the pioneering and most meticulous study on the subject of game theory, also "The Theory of Games and Economic Behavior" by Neumann and Morgenstern was released in 1943, with Raiffa, Schelling, Riker, Kaplan, and a host of others all connected to the idea in some way.
The application of game theory to power games, in which one superpower attempts to outmaneuver another, helped to propel the field of game theory into the public consciousness during the time known as the "cold war."
When disputes emerge, such as the current international calamity, game theory can be utilized as a part of the decision-making process.
In a gaming scenario, the decision unit may be a person, a group, or an entire nation that is not controlled by other units of decision with whom it must interact.
Each unit of decision-making has its very own set of objectives and goals. Each decision unit must do as much as feasible. However, they must remember that there exist other deciders whose objectives differ from their own and whose choices impact everyone engaged in the circumstance.
Participants in a game are positioned so that their actions might result in several outcomes with distinct values.
Consequently, decision-makers are in a state of dependency. All units have the freedom to make autonomous decisions, but the total outcome is contingent on the decisions made by each player. This idea relates to policymaking when there is no optimum option able to be chosen, but rather the best outcomes depend on the actions of other participants.
Social scientists, economists, and especially Bitcoiners have utilized Game Theory as an analytical instrument to explain behavior and outcomes in situations involving conflict. Consequently, game theory is a study designed to address competitive or competing circumstances. Rationality and maximization are the essential cornerstones of game theory.
What is Happening
Currently, the US dollar as the world reserve currency grants extreme privilege to the US over every other nation on the planet. But what if I told you that the dollar could be toppled as the reserve currency of the world and that we are in the process of that right now?
In Vol. 1, we discussed events that have led the world to this maddening fever pitch and the blowback from the weaponization of SWIFT and the dollar.
As stated, a game is unfolding before us, one for the ages. So let's come into the present and observe the deciders and players of the game.
From there, we can make deductions based on the incentives and benefits of the various choices and actions taken.
Now through these deductions, let's decipher how the game theory at play will lead to the end of the dollar's world reserve currency status and the end of the Unipolar World.
The Unipolar World Ends
During the BRICS summit, Vladimir Putin announced that the association intends to create a new international reserve currency in June. The BRICS association is an intercontinental confederation bringing together Brazil, Russia, India, China, and South Africa.
This action is meant to challenge the dollar's position as the leading currency in the world, a circumstance that has existed for nearly 80 years.
The Russian government has not been coy about the fact that it is suspicious of the status quo; in fact, Russian Foreign Minister Sergei Lavrov stated only recently that the dollar's reign as the world's reserve currency might not last much longer.
“The reliance on the dollar as the instrument supporting the world economy is not very promising, frankly speaking,” Lavrov said. “It is not by incident that more and more countries are shifting to using alternative currencies, shifting to use national currencies more and more, and this process will be gaining momentum,” he added.
As a kind of vengeance for Russia's invasion of Ukraine in February, the United States unleashed a potent economic weapon on Russia thanks to the dollar's supremacy.
They froze the reserves of Russia's central bank together with their allies, cutting off the nation from approximately $630 billion. As a result, the country could not steady its currency by buying rubles with US dollars on forex markets.
On the other hand, many are concerned that the act would undermine future dollar dominance.
According to an economic historian at the University of Milan, Luca Fantacci, if a country has dollars and faces the danger of having those dollars taken when required to satisfy foreign payment obligations or prop up its currency, then the government is in a precarious financial position.
“It provides an incentive not only to Russia but to other countries that have been hit by similar provisions in the past to diversify and to move their reserves and into other currency areas," Fantacci said.
Beginning in March, the Eurasian Economic Union, comprised of the countries of Russia, Armenia, Kazakhstan, Kyrgyzstan, and Belarus, came to a consensus over the requirement for the creation of a new international currency.
Fantacci stated that the goal of these nations is to "free themselves from the usage of the dollar in a scenario in which they have constraints on the use of dollars for overseas payments."
In 2009, the Chinese Central Bank suggested reconstructing the global monetary system predicated on a commodity-backed currency.
The concept was supported by the other BRICS nations as well.
"What we will see is possibly something that never has happened in history, and that is a fragmentation of the international monetary system with several currency areas that compete and several strong currencies that maintain local, regional hegemony," Fantacci said. "And I think this is definitely not an encouraging perspective for the United States and the West in general."
This is critical, especially in an inflationary environment with signs of stagflation everywhere. The rapid increase in money supply brings on inflation. To fix the prior printing error, another error is made in the rate of rate increases by the FED, devastating lesser fiat currencies pegged to the dollar. Now, if countries that roll over, like Sri Lanka and Lebanon and the many that will follow, roll into the dollar, that can help eat up some of that inflation with a new home for the excess dollars.
But, now you must consider in game theory, what if it's in those countries' best interest not to dollarize and they seek an alternative or join a new union such as BRICS. Also, what if dollarized nations with regional partners de-dollarizing decide to roll into other options they can't be cut off from? Now you not only don't have a home for the excess dollars printed out of thin air, but even more excess dollars manifest through de-dollarization leading to an inflationary cycle we could hardly imagine.
Someone in this game is multiple moves ahead, and if it were to play out in such a fashion with the dollar dethroned, it might look something like this.
How it Could Play Out
In an episode of "Simply Bitcoin: In Real Life," Bitcoin and macro analyst Tone Vays laid out one of the most compelling arguments on how this will all unfold building on the dollar downfall and multipolar future Fantacci, Lavrov, and Putin mentioned.
In Tone's presentation, he gives a breakdown of BRICS by the numbers. While it currently comprises only five nations, the economic coalition makes up 42% of the world population, 30% of the earth's land area, 26% of the global domestic product, and 20% of exports and imports. BRICS is not some outside group without political or economic pull.
In this chart from the IMF/UN, we can see that by 2023 they projected BRICS to account for 27% of global GDP, with BRICS passing the G7 in GDP (PPP) by 2023. That was achieved in 2022 despite the sanctions and plandemic; BRICS accounted for 38% of GDP (PPP), with the G7 accounting for 37%. So as the G7 diminishes, BRICS grows.
BRICS and G7 Nations Visualized
Global Free and Preferential Trade Areas BRICS Members States are Leading
Breakdown of the Vote to Remove Russia from UN
Following the breakout of the conflict in Ukraine, a UN vote was taken on whether Russia violated Human Rights. The blue nations were the ones that voted in favor. The yellow countries abstained from the vote, and the red nations voted in favor of Russia. This picture alone says so much about the division between nations on the issue, whereas the media would have you believe there was a global consensus on this.
Now, why did each nation make the decision it did? They did so to benefit and maximize their positions and prospects based on the other players taking part in the game and their decisions. So, again, the G7 weakens, and the dollar crushes emerging markets; the perfect scenario is playing out, leading nations towards the rising BRICS, Bitcoin, and away from the West and the dollar.
A Look into the Future and Where the Dominoes Will Fall
Above, Tone Vays charted how he saw the future alignment based on game theory and purely economic benefits. We still have the G7 in Blue with the BRICS in red, but the light red nations are those Vays believed would be most likely to join BRICS with the light blue the G7.
If that isn't the end of the unipolar world, I don't know what is. Key swing states Vays mentioned were Venezuela, Turkey, and Indonesia, which is a bit of an economic powerhouse in its own right.
War Financing, Empire Building, Runaway Spending, Easy Credit, and Sanctions all Lead to Reserve Currency Demise
It is vital to be acquainted with the beginnings to comprehend the conclusion of any currency's reserve status. This is because the origins influence the finale.
The instance of the pound, which was converted from silver to cash with the establishment of the Bank of England before it became a reserve currency, is a particularly instructive illustration of this phenomenon.
After suffering a humiliating military setback at the hand of France, England decided to establish a bank to raise funds for constructing a more capable fleet.
This decision led to the establishment of the Bank of England. As a result, the authority to issue fiat money was delegated solely to the central bank.
War and the expansion of imperial territory through nation-building would also play a vital role in the subsequent decline of the value of the British pound. A rise in spending, easy access to credit, and restrictions on free commerce through sanctions are additional reasons that tend to emerge before the demise of reserve currencies.
There are countless illustrations of the dollar and the US following this same route to its downfall while incentivizing players and deciders elsewhere into alternative currencies, like Bitcoin, and alternative economic pacts.
The Two Main Players’ Moves Thus Far
In January, US President Joe Biden threatened that "their banks would not be able to deal in dollars if Russia invaded Ukraine."
Putin then talks up and promotes the Russian advantages through energy abundance for Bitcoin mining, knowing that Bitcoin can aid Russia in becoming more self-sovereign.
Biden Admin announces US state agencies to work on the development of a regulatory policy for 'crypto' to protect "national security interests."
Russia announced the recognition of Bitcoin as "currency analogs."
US 'crypto' executive order comes out with a more favorable treatment than many had expected, with a tone that embracing this technology could help the US remain competitive.
Besides the clueless likes of Elizabeth Warren and others on both sides of the aisle, there is bipartisan recognition that the US can't allow Russia and other nations to gain an advantage. Thus, the Bitcoin Race is on.
Where Bitcoin Fits in the Geo-Political Landscape
This is Bitcoin game theory, and it's currently playing out right in front of the world. Everyone (any country, state, city, central bank, commercial bank, corporation, NGO, and individual) will ultimately be obliged to accept Bitcoin since those who do not would be significantly disadvantaged compared to their competitors or opponents.
In this way, Bitcoin game theory is similar to encryption in particular. However, governments despise strong encryption because it reduces their capacity to capture and snoop, limiting their authority. As a result, some countries have attempted to outlaw encryption, and the United States has considered legislation requiring encryption software makers to add "back doors."
However, all such initiatives have primarily failed because encryption provides sovereign nations and their economy with significant strategic benefits making them more resilient to outside interference. All else being equal, no government or economy that refuses to use encryption or requires back doors that adversaries may exploit can contend with a state that ultimately secures its economy with effective encryption.
This characteristic has assured encryption's widespread and rapid adoption across the world. Likewise, game theory principles will ensure Bitcoin's broad adoption in the near future.
Governments will not outlaw Bitcoin, nor will they want to tax it to oblivion. Instead, they will search for methods to encourage and support its use inside their borders in the future. Its strategic importance is enormous.
The significant barrier to widespread corporate adoption is "an absence of regulatory certainty." Governments are aware of this, and the United States and Russia have pledged to provide regulatory certainty/clarity as quickly as possible. More or less, every nation will do the same.
The Bitcoin arms race has begun. It will be a hot topic for the next decade. The countries who win the race will be the leading powers in the "Bright Orange Future."
Game On.
Written by @SatsforLIfe