Bitcoin’s Second Wind
Important development in the currency world that everyone should pay attention to:
1. United Kingdom in negotiation with China on trading China’s currency and bonds
2. China and ECB currency swap deal
3. Bitcoin is now accepted as payment for part of Baidu’s online services
Remember that every direct transaction eliminating the US dollar as intermediary will further collapse the premium built into US dollar. There is no turning back to the old ways of international commerce where US dollar was king. China is not the only country trying to protect its interest. All the other countries are doing the same.
Do not take this as a directional call of US dollar weakening across the board. All it means is that US dollar will be stripped of its premium. There are always other countries that will do worse than United States hence US dollar will stand its ground at a lower equilibrium. It is difficult to estimate the impact at this point. It can be an overall discount of 15% or 25%. It can be worse. There is not enough information to figure out the possible scenarios, yet.
For example, countries like Japan and the whole EU complex are heading down the drain. Without reasonable competitive advantage, these places will have a hard time going forward in generating positive growth within their region. Thus euro and yen are likely going a lot lower against the other major currencies in the next decade.
The Bitcoin development is just natural progress of our economic system in search of a solution to the biggest currency problem of our time – something that can replace US dollar which is not controlled or bounded by any single country. The development in this area will dictate the direction of commerce in coming 10 to 15 years. Even if you do not believe in Bitcoin as a currency of the future, you should at least understand the basics of virtual currencies and be ready should they become more prominent over time.