The global financial system is comprised of a framework of legal agreements, institutions, and both formal and informal economic actors that together facilitate international flows of financial capital for purposes of investment and trade financing. Our current global financial systems are based on a series of historical events and innovations that brought us to where we are today. Historical markers such as the first minted coin, the use of paper money, the adoption of the US dollar as the international reserve currency, abandonment of the gold standard, and the ubiquity of mobile payments have all greatly influenced the way we exchange and store value on a micro and macro scale. The invention of cryptocurrencies has led us to another important crossroads in the evolution of money. Just as the ancient Lydian kingdom that issued the first minted coins benefited from leading the expansion of trade in the region, so too will the nation or entity that leads the development of a globally-accepted digital currency to meet the needs of the twenty-first century. Given the profound impact such a universal cryptocurrency would instill upon the world’s economy, it is incumbent upon us all to consider its potential impacts and trajectory. Often the best way to predict the future is to review the past. A History of Money Prior to the introduction of minted coins, the trade-based economy worked fairly well for small, self-sustaining communities. Around 600 B.C., the Lydian kingdom was able to become one of the wealthiest in Asia Minor by minting the first official currency made from a mixture of gold and silver. Similarly, China’s adoption of paper bills in 700 B.C made trade that much less cumbersome and more efficient. It would be centuries before paper bills were adopted by the West, but the eventual issuance of paper bills by 16th-century colonial governments allowed Europe to greatly expand international trade. The decision to make the US dollar the reserve currency of the world came from the meeting of global leaders that took place in Bretton Woods, New Hampshire, USA toward the end of World War II in 1944. The conference concluded with the leaders deciding that the US dollar would become central to a in which many countries fixed their own currency exchange rates to the US dollar. new global financial order The French Minister of Finance in the 1960s, Valéry Giscard d'Estaing, characterized the position of using the US dollar as the primary currency for global trade and savings as an "exorbitant privilege." Giscard was correct in the sense that the US dollar’s role as the reserve currency of the world allows the United States to shape international relations and policy. Will the Strength of the US Dollar Hold? The historical pull of the US dollar worldwide does not necessarily mean it is here to stay forever, as we are currently witnessing major global shifts in economic power. Some economists predict as the leading global economic power, perhaps as soon as 2030. China’s GDP on a purchasing power parity (PPP) basis has already surpassed that of the United States, and the International Monetary Fund (IMF) predicts that by 2024, larger on a PPP basis. China may be on a path to replace the United States China’s economy will be 56% Graphic from a Congressional Research Service report on China’s Economic Rise: History, Trends, Challenges, and Implications for the United States . As the United States, China, and other global powers jockey for position in the global economy, the next battlefield is now focused on the rise of global digital currencies. The nation, corporation, or institution that leads development of a cryptocurrency that is easy to exchange, offers a stable store of value, and, beyond that, provides a non-flationary financial standard will likely be the next global power. Mark Zuckerberg suggested in his recent testimony to congress that if the United States is not careful, China could win that fight. And this story is currently unfolding before our very eyes at this point in time. stated on October 24th, 2019, “[We must] clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.” President Xi Jinping’s comments indicate a recognition that by getting out in front of blockchain innovation, China will have a leg-up in ensuring that future applications of the technology will serve China’s economic interests. President Xi Jinping Crypto influencer and Co-founder and Partner at Morgan Creek Digital, Anthony “Pomp” Pompliano, in response: tweeted Pomp expanded upon this point in his , suggesting that should the United States fail to adapt to the modern age, it will lose its status as a superpower, which largely rests on the universal acceptance of the US dollar. newsletter Let the Crypto Games Begin The unseemliness of a Chinese-controled global cryptocurrency that serves China’s interests does not mean that Libra, of which Facebook is a founding member, is preferable for the world’s universal currency. Though, according to the , Libra will be based on a “basket of bank deposits and short-term government securities,” indicating that Libra is not intended to overthrow any of our current financial systems. white paper Zuckerberg also that the US dollar could be the primary currency backing Libra, articulating, “I can’t speak for the Independent Association on this, but I think it would be completely reasonable for our regulators to try to impose a restriction that says that it has to be primarily US dollars.” suggested to congress Given it appears Libra will be tied to fiat-driven instruments one way or another, Libra as a currency is not likely to be superior to any current sovereign currency, as it will suffer the same inflation and other market impacts as its fiat counterparts. The next evolution of our financial system should be more than a digitization of existing structures, offering genuine improvement to the economic situation of individuals, businesses, and nations. Unlike China’s digital currency electronic payment system (DCEP) or Libra’s proposed stablecoin, the currency that ultimately replaces the dollar as the world’s preferred means of payment and store of value will serve as a hedge against market volatility in addition to being easy to send and receive. Stablecoins have the potential to achieve that for the world, but not through pegs to fiat-driven instruments. The cryptocurrency that serves the needs of the modern age should be truly universal in the sense that price is not determined by speculation, artificially induced, politically influenced, or manipulated.

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