Next steps on Macro Economic scope for dollar, fiat, gold and crypto
The world is experiencing the Covid-19 pandemic and its spill-over effects., We are not only experiencing major changes in the way we interact but also long-lasting effects on the world economy. In his presentation, Illia Polosukhin discussed the macroeconomic scopes for dollars, fiat, gold and cryptocurrencies by exploring the effects that we can already see..
The Impact of Pandemics on the World Economy
As mentioned above, the global crisis will have long-lasting effects which will result an unprecedented crisis for the world economy and many industries. The service industry, including tourism, restaurants, events and retail, will be most affected. These are all industries that have direct contact with customers, thus, promote the spreading of the virus.
Without the service industry fully functioning, the global economy cannot function properly. To illustrate, there have been +6M people losing their jobs in the US in March and it is expected that this number will continue to rise to 10M in April. In Europe, the number of unemployed increased by +1M just last week and globally, there have been ~ 36M more people registering for unemployement, according to International Labor Organization.
In the previous economic crisis in 2008, it took the US 2 years for the peak of the crisis to reach (2010). The global crisis caused great demand for dollars in countries of the 2nd or 3rd world. In addition, The central bank also mainly reserves in USD and IMF loans are also paid in USD. The demand for the Dollar occurs due to many countries have capital controls around the dollar. Countries like the Ukraine required export companies to sell 50% of their dollars on receipt. The Chinese's RMB usually trades + 1-2% of the official price (USD / RMB), while Venezuelans use the Chase QuickPay account to trade in dollars.
Due to the changes outlined above, China began to set up Yuan as a reserve currency several years ago by exchanging liquidity with the Russian central bank in 2016, Internal economic transformation from export orientation to consumerism (the revenue of China's single day last year reached to $ 60 billion). They also hugely invest in the nation's R&D technology. US policy to limit technology exports to China only accelerates China's determination. China is doing everything to give Yuan a greater global circulation during this crisis.
Since ancient times, gold has been considered a safe haven during economic crisis. Today, Gold is mainly used in reserves and traded in futures and options. Currently, gold is divided according to the ratio of 47% (for jewelry making), 17% (for bank reserves), 14% (for industry), 21% (for private investment). However, gold has the disadvantage of being difficult to transport and difficult to use as an account measure. Furthermore, Gold is not really a currency, it's hard to imagine Gold become anything more than a hedge asset.
The total capitalization of stablecoins is at $7.7 billion, with an annual growth of 170% + with a total volume of $42B. USDT currently accounts for $6.2B / 40B of total market capitalization. However, because of being backed by USD, it is still necessary to buy USD to expand USDT's supply. In countries with capital controls, USDT trades at least 1-2% higher than the current market.
Crypto remains a major trading and investment asset. The collapse of the market recently has shown that investors have closed their positions similar to traditional markets such as stocks and futures commodities. However, even in countries with a large percentage of unbanked people, people still do not use cryptocurrencies directly. The reason is because the huge fluctuations in the cryptocurrency market have killed it as a perfect payment tool. Most cryptocurrencies have no native cost structure around, the exception being dApps. However, dApps now have very low usage.
Furthermore, the user interface of cryptocurrency applications is too complex for the common end user. Let's take Stablecoins as an example. Stablecoins are still young and quite volatile. In some cases Stablecoins have a greater risk profile than other cryptocurrencies. This has been highlighted in a recent Tether lawsuits. The USD peg provides great value in the short term, but creates medium-term risk. However, cryptocurrencies appear to be very useful when pandemic happens as it can help people to avoid using paper money, which can cause the spread of Covid-19.