A Fork In The Road

Good Morning Everyone,

In a really valuable conversation with Preston Pysh, Nic Carter highlighted the situation in Myanmar, and pointed out what an interesting and telling example it is for the potential fork in the road that more countries are likely to face in the upcoming years as political monies become more and more encumbered and weaponised.

For those that are not aware of the situation in Myanmar (Burma), the short version is that the country had enjoyed a brief period of democratic rule in recent years, in amongst a turbulent history. The military had been heavily intertwined within the countries governance structure and in February 2021 a military coup was initiated to take control of Myanmar from the NLD party, and declared a state of emergency within the country.

NLD leader and Nobel peace prize laureate, Aung San Suu Kyi was detained under house arrest following the coup, and in December 2021 was jailed for incitement against the military and for breaching COVID-19 restrictions.

Where this gets particularly interesting is in relation to what has happened monetarily following the coup, the role of money, and what impacts the technology of money have in situations of conflict. What qualities and monetary characteristics become more important, and why.

There are two opposing local forces - the military and the shadow opposition government. The military have adopted the Chinese Yuan as their settlement currency while the shadow government have adopted Tether, a US-backed crypto stablecoin.

Not only is it compelling to see a real world use case of a government adopting a non traditional monetary system as their settlement layer, it’s fascinating given the fact that 10 years ago, it was not possible, or certainly nowhere near as frictionless. So the dynamics at play here are somewhat novel and may provide a glimpse into the future, as to how future conflicts may be impacted as a result of this emergent technology.

To quote Nic:

“ On the one hand you have the coup government, which is a Chinese-backed coup which happened earlier this year. They de-dollarized their settlement currency. They went from dollars to Chinese Yuan. I think that’s very indicative of the way the world is going, especially in the Chinese sphere of influence, is de-dollarization, and that’s one trend to keep an eye on.

The other thing that happened virtually at the same exact time, was the opposition government, the shadow government, that was deposed in the coup adopted Tether officially as their currency. A stablecoin, a dollar backed stable coin.

And these 2 things happened at the same time. So on the one hand you have official de-dollarization and Yuan-ification and at the same time from the opposition, you have crypto-dollarization happening because the opposition government wanted to raise capital from the Burmese diaspora worldwide, they needed an efficient settlement currency, but they couldn’t be encumbered by lets say the Burmese banking system. They had to do something outside of that system.

I think this was such a telling little anecdote. It’s kind of two visions of the future, and it’s what I would take to US policy makers that are thinking about stablecoins and think about the crypto market.

They’re very scared of stablecoins US policy makers, they kind of hate them, they fear them, and they think stablecoins are a threat to the dollar. Some of them think stablecoins are a form of counterfeiting etc… But just look at this little example.

You have on the one hand this secular long-term threat to the dollar, which is a competing currency, competing for global reserve status from a rising hegemon; and then at the same time the dollars reach is actually expanding through crypto rails, through stablecoins acting as extensions of the dollar.

The stablecoins are backed by dollars and then they’re issuing claims against them circulated on blockchains, and because they are circulating on these credibly neutral infrastructures with no censorship hopefully, depending on the blockchain, that is this frictionless way to distribute dollars to the worlds population, to places that need dollars, and they need dollars in a less encumbered way than sort of the good old US dollar in the legacy system, which is very encumbered, very politically encumbered.. and I just thought that was such a telling little story. Thats sort of like, two forks, and here’s world one, and here’s world two - which one would you sort of rather? “

There are clearly some big themes here, particularly in respect to the Yuan-ification of countries within the Chinese sphere of influence. This is something that is only likely to increase.

Secondly, is the optionality and potential tool stablecoins could be utilized as by the US in the face of the declining power of the US dollar, and as more countries de-dollarize.

Finally, is the need for “money” to be neutral in order to be truly effective and valuable as money. The best form of money has no utility, contrary to common belief. As soon as utility exists like the ability to surveil transactions, or censor transactions and apply sanctions, these powers are inevitably wielded as an exercising of power, and incentives certain participants to look for an alternative, which ultimately reduces the value to the item as an effective money over time as less and less people are willing to accept it.

It’s not obvious to me how the situation in Myanmar plays out, but i think it is somewhat of a microcosm of what is taking place around the world more broadly. The fact that alternate monetary levers now exist seems extremely positive, as the legacy systems has become increasingly weaponised as a means of wielding power and control.

Clearly we’re in the early stages a major global monetary disruption. One can only hope it incentives and enables humans to better cooperate rather than opting for violence. Time will tell.

I hope you have a great end of your week and i’ll chat to everyone on Monday.

AK

"The measure of intelligence is the ability to change". - Albert Einstein

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