Could Hive Backed Dollar Serve As The Reserve Currency?
This sounds like a preposterous idea. Actually, as we will see, it is no crazier than the idea of Bitcoin as the global reserve currency. Here we are not going to make the case that HBD will end up serving that role. The point is to highlight the characteristics that are built into the currency and how powerful they are.
The idea of a global reserve currency is to increase efficiency in the financial system. Some question whether this will be needed in the future as technology advances. With the concept of digital wallets, instant swaps might be possible. Hence, a reserve currency to transact might find its way out to pasture.
A currency operating in this capacity is an intermediary. It forms a bridge between two currencies. In other words, the USD allows for those holding YEN to do business with those who want to be paid in EURO. Neither party, nor their bank, needs to have the other currency. Here the YEN is converted to USD, transferred, and converted to EURO.
Whether this efficiency can be picked up from technology remains to be seen. The world of cryptocurrency is offering huge possibilities. It is likely that the USD is the last reserve currency for a number of reasons. At the top of the list is the fact that efficiency can be gained without it. We also have the idea of Networked-States in the digital world which takes interaction to a complete new level.
The Three Pillars Of A Global Reserve Currency
Robert Solomon designed the three pillars of a global reserve currency. This was done to explain what characteristics were needed to create the efficiency in the global economy and keep it growing. These are some of what can make the Hive Backed Dollar (HBD) so powerful.
Here are the three pillars:
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Liquidity: The currency is available in large enough quantities to meet the demand of the market, enabling for economic growth and, in turn, raising the standards of living.
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Adjustment: The demand for money changes over time. A reserve currency must be flexible to change as market force dictate.
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Confidence: People need to believe in the system enough to participate.
The USD did well for a while in all three. However, over the last 20 years, it fell down on the first one, meaning that it is starting to hinder #3. By contrast, the Eurodollar system has hit upon all three at times. However, due to the lack of USD globally, it is also being affected.
Here is where we see Bitcoin fall down in this regard. Many discuss that currency taking over as the reserve currency. It fails from the start on the second factor meaning that it will fail, at some point, on the first. Without elasticity, we are looking at a situation where the market will eventually be thwarted since supply cannot meet demand.
Hive Backed Dollar (HBD)
Let us look at how the Hive Backed Dollar (HBD) fares with these characteristics.
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Liquidity: Obviously this is an area it falls short, at the moment. However, the mechanisms are in place to increase the supply to meet any demands for liquidity. There is no limit to how much HBD can be created, thus always being able to step up and meet what is required.
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Adjustment: Here is where HBD excels. Not only can the supply adjust to meet demand, it is completely in the hands of the market. There is no entity that determines how much is to be created based upon models, forecasts, or anything else. When the market deems more supply is needed, HIVE can be converted to meet said demand. If the demand wanes, the reverse can take place to tighten the supply. It is truly market-based.
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Confidence: This is where blockchain enters. Code is Law. HBD is run by the code at the base layer. We do not have a foundation or company behind it. The code is there for anyone to review and see how it works. Any changes require a hard fork AND consensus of the top 20 block validators (witnesses).
What we are looking at is a market driven currency that removes the individual human element (either person or entity) from the equation. Nobody is deciding how many HBD are going to be required because, quite frankly, none of us know. As much as we try to forecast economic conditions, we so not have a crystal ball. Instead, we let the market decide by providing the mechanisms to expand or contract as needed.
Why Would We Do This?
Here is the question that gets to the core of it. Why would people get involved to ensure there is proper liquidity? We can equate this to the reason banks got involved in the Eurodollar system: to make a lot of money.
Banks generated nice profits by engaging in this system, only ending up being constrained by their own balance sheets (hence the term "balance sheet banking"). Thus, they were incentivized to keep providing the liquidity to the market as demanded.
The same holds true with HBD and an system created around it. Individuals would be able to gain vast returns by participating and providing liquidity. Instead of the banks reaping the profits for "creating money to make money", a similar system here would spread those rewards out to anyone involved.
HBD does have the potential to meet Solomon's Three Pillars. It is a basis upon which to create a full system of borrowing, lending, collateralization, and remittance. We know it operates outside the scope of any government or central bank. This could truly be an alternate system.
As stated earlier, it is unlikely we see another reserve currency since technology will probably end up providing the efficiency to the global system without the need for an intermediary. However, in using this line of thinking, we can see how powerful HBD can become. Due to its characteristics, we can see how an entire system can be built around it.
The idea is not to create a stablecoin or a currency but to understand what it takes to develop a financial system. That is what is going to step to the forefront in the future.
Plus we have to keep in mind the premise of having a base layer, underlying system that is not only depended upon the code, but has no direct transaction fees. That alone is a revolutionary change in the financial world.
Hopefully we are starting to see the potential that is before us.
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