How a Gold-Backed Cryptocurrency Is Set to Usurp the US Dollar

Updated on May 27, 2019
Tommy Limpitlaw profile image

A keen observer of world affairs. Whether it's political or economical (both the same really) I like to keep myself informed.

Gold and Cryptocurrencies Make a Perfect Partnership
Gold and Cryptocurrencies Make a Perfect Partnership | Source

US Dollar - Reserve Currency Status

The US Dollar has been the world’s reserve currency for the best part of a hundred years now. After Britain spent more money than it could afford fighting for and against its neighbours across the English channel in World War I, America stood back, waited patiently and moved in to eventually become the standard bearer for the world. Ever since, America has dominated world politics and trade.

Britain and the pound wasn’t the first dominant nation and currency to relinquish its power, however. Many fell before them, and the new king, America, will be the next to relinquish its crown. In fact, I believe the displacement is already underway. These things take time. Britain fought for decades and didn’t officially lose its reserve currency crown until after World War II.

The Forceful Arm of the American Government

America hasn’t helped itself to remain king of the currencies, of course. Most world trade is done in dollars using the SWIFT System, and America can and has dictated which governments can use it. The SWIFT System is not owned by America, but because of their reserve currency status they have so much clout, they dictate proceedings. Therefore, if a country isn’t doing as America pleases it is literally cut off until it does as it’s told.

Any country not playing ball is penalised with sanctions by the US government, and the effect can be catastrophic for governments and their economies. Of course, this only creates resentment. Two of America’s biggest foes, China and Russia have been victims of sanctions and have had their economies strangled. Some might say rightly, but that is not important for this argument. The fact is America has dictated world trade with its reserve currency status and at times abused its power.

Russia and China are in Constant Talks
Russia and China are in Constant Talks | Source

Venezuela and Iran have been a victim of American sanctions. Venezuela is the world’s biggest oil supplier, Iran also has copious amounts of it to sell, but because oil is traded in US dollars, neither nation could sell it on the open market. This obviously doesn’t sit well, and Russia has been in talks with both nations about bypassing the Swift system. What’s more, Russia has dumped the vast majority of its US Treasury holdings worth an estimated $80 billion, replacing it with gold.

China, America’s biggest debt owner sold a staggering $100 billion of its US Treasury holdings. China still owns over $1 trillion of US debt, however, but they can’t simply sell all of that, as it would have an adverse effect on the world economy. They have to unfasten themselves from America's dominance gradually. Why are they doing this? Because they want to displace the US dollar as the reserve currency of the world and at the same time weaken America’s grip on world power.

A Gold-Backed CryptoCurrency

It’s no secret that they are in talks about a bilateral trade agreement, which includes a new cross-border system for direct payments using only the Yuan and the Ruble. The same agreement will allow each nation’s main credit card to be used cross border. An agreement between these two countries, no matter how huge their economies, is limited, however. If they are to integrate other nations like Iran, Venezuela and whoever else into a new system, they have to come up with something frictionless and with absolute trust.

A payments system that no one government can control. Not China, not Russia and not the US. Blockchain, the technology that underpins Bitcoin and cryptocurrencies will be the infrastructure of the new payment’s system. A public blockchain, like Bitcoin, is decentralised, not controlled by any central entity and is the most robust and secure database ever created. Governments don’t and can’t control it and that makes it, or something similar, an ideal solution to circumvent the SWIFT System.

Blockchain is the Most Secure Data Network Ever Created
Blockchain is the Most Secure Data Network Ever Created | Source

Some governments are creating their own cryptocurrency, but that is basically a digital version of what’s in place now. Venezuela has launched one called the Petro, and it is claiming that it’s backed by the oil reserves and that oil can only be traded in the crypto. If it wasn’t such a serious matter, that would be as laughable as the central server that secures it. Any government in control of a cryptocurrency, can just create more when it pleases, just like it has done for millennia with the Fiat system, and that makes it untrusting and pretty much useless.

A private blockchain like that can never become the reserve currency of the world, because other governments will just produce their own and compete against each other. It has to be decentralised, public, secure and trustless, like Bitcoin. I’m not saying Bitcoin will become the currency used as their payment system, although that is possible in years to come, after everybody inevitably has taken notice of it and adopted it.

I believe governments are collaborating to create a gold-backed cryptocurrency, and that is why China and Russia and many other countries have been buying gold in large amounts. The world came off the gold standard in 1971, and currencies have been backed by the promise of our governments ever since. I don’t think we will go back to a gold standard, either. I imagine the new new payment system will be a gold-backed cryptocurrency.

Why Not Just Use Gold?

Why won’t they just use gold? Gold is an ideal store of value but it’s terribly useless as an exchange of value. Governments don’t spend a few coins, they spend millions and billions. So, if they want to buy say a billion dollars worth of oil with gold, the cost and logistics of transferring that gold is unbelievably dangerous, expensive and extremely slow.

Gold is Perfect to Store Value, but Security and Transportation Makes Difficult
Gold is Perfect to Store Value, but Security and Transportation Makes Difficult | Source

Cryptocurrencies are extremely safe and fast, and the data of each token can be programmed to represent anything. I believe gold will be represented on a blockchain that is decentralised among the nations that use it. When any government purchases something from another government, it will just send the cryptocurrency as payment. Those tokens will be exchangeable for gold whenever a government wishes, but as time goes by governments will have absolute trust in the system and their cryptocurrency.

This might seem like fantasyland, but governments really are fed up of America’s control. Its reserve currency status gives it so much influence and benefits that other countries have to do something to even the playing field. Cryptocurrencies are the next form of money and within a few years, the crypto eco-system will be as ubiquitous as any other market. Gold has always been a store of value and now it can be represented on a decentralised, secure, and immutable ledger.


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