Many are questioning the reserve status of the U.S Dollar. It seems every couple weeks, someone is chiming in about the "death of the dollar". Sadly, like most things, it is not as simple as people make it out to be. In fact, it is compounded by the fact that very few understand what make it so in the first place.

To arrive at that conclusion, we have to travel back 100 years to see what took place. At that time, the British Pound was the reserve currency. The United States, relatively speaking, was still rather new, but was starting to step up on the global stage. Britain was threatened for the first time in a while.

So what happened?

Reserve Currency

In that era, the United States economy surpassed Britain's. This was a very important moment that many attribute as the reason for the United States rise in this area. However, that is only a piece of the puzzle.

The other factor had to do with the banking system. Britain's was no where near as advanced as the U.S. This is a situation that still holds true today. When we look at large, international deals, not only do they almost always include a U.S. bank, they are most often headlined by one.

Right now the United States still has the most advanced banking system in the world. Thus, by the end of World War 2, when the U.S. was largely responsible for the victory there, the shift to the USD was obvious.

If we look at the situation through this same lens, what is going to step up to meet these criteria? We must keep in mind, the currency game is basically pitting one against another. So if the USD is going to be dumped as the reserve currency, that means something else has to step up under the present system.

Who meets the criteria that is outlined here?

There are forecasts that China will surpass the U.S. in economy size by the end of this decade. If that happens, one of the criteria is met. However, when we look at banking systems around the world, who can compete with the U.S.? Does the international community trust the Chinese and their banks? Hell, few can trust what they say about the numbers for their companies. It is unlikely that we will see that.

How about the trifecta of Germany, Russia, and China? Does that pose a threat?

If we look at it realistically, not really. The German banking system is a mess. As for Russia, they bring military might but can most of us even name a Russian bank? Thus, it is unlikely that anyone will trust the trio.

The same goes for the EU. This was set up to compete with the US as a major global power. It did not happen. The Eurozone is falling apart with situations that are worse than the United States. Whatever ailments that has, the EU has it worse.

Therefore, the USD will not lose its status as the reserve currency under the present system.

Networked Economy

We can seriously question what type of economy we are going to have in the next 15-20 years.

At present, we are still operating in a system that was established long before digitization. This means that geography played a large role in it. The institutions we deal with were designed to excel in a physical world. For example, governments were established to govern (rule/control) over people in a particular area. This means that all laws were written with that in mind.

Naturally, the world is changing rapidly. We are not only in a digital world, we are rapidly moving towards a virtual one. This means the existing system is not going to survive over the long-term. The problems it faces in the digital realm with subjects such as intellectual property and copyrights are just one example.

A company like Facebook is the epitome of what is taking place. Even though it is a siloed entity, it does wield enormous power over billions of people. This makes its influence larger than any government.

At the same time, if that company makes a change to its algorithm, it affects more people than most laws that Congress passes. Plus, the impact is felt immediately as opposed to the government taking months (or even years) for something to fully go into effect.

Here we see the power of a network.

Since we now have the ability to tokenize these, we are only enhancing the power. The result is we see the potential to instantly create an economy with a different currency as the base of operation.

What this likely means is a lack of standardization going forward. Instead, we are going to see the embracing of thousands of different tokens. Ultimately, people will interact using whatever tokens are in their wallets.

It is where technology enters the equation. Nobody is going to care about a reserve currency because there will not be many centralized hubs of activity. People are going to be cruising around the Metaverse doing whatever they do. Along the way, they will accumulate many different tokens. This is going to be the foundation for their financial existence.

We also see where most people get it wrong. They are still looking at things through the same lens as what is in place now. Decentralized and distributed create a completely different realm. We are witnessing the development of an extremely complex system with a lot more moving pieces. It has the ability to grow exponentially while extending in near unlimited directions.