The Fall of Dollar Amid Inflation, So What About the Currency of the New Era?

The reorganization of the global situation triggered by the Russian-Ukraine war seems to be signaling the end of the 'era of dollars'.

The dollar has been a 'world reserve currency' for about 70 years under the reputation of the United States, which has been reborn as a World War II winner. After World War II, the path for the United States was clear. The United Stated has been existed as the leader of world financial system based on the absolute millitary power they'd achived through the wars. The United States has led global finance for more than a century, controlling the issuance of the dollar, the world's key currency. The dollar was a source of the power for the world's strongest country, while it was the certified check that reflects the trust of the 'U.S. empire'. The intrinsic value of the dollar is the belief that it will remain in circulation and have value in exchange for everything.

# The Fall of the 'World Stock Currency' Dollar

However, the value of the dollar fell sharply last year, and the belief on dollar began to crack. In the aftermath of the pandemic caused by Corona Virus, the U.S. and the Federal Reserve (Fed), which has the right to issue the dollar, began to 'print' dollars at a frightening pace as they planed to revive the economy. The main asset on the balance sheet released by the Fed in 2021 is U.S. government bonds. The Fed bought government bonds from various places with 'printed' dollar at an alarming rate. Large-scale quantitative easing due to the COVID-19 crisis was evaluated at an unprecedented scale and speed. As a result, the U.S. debt already reached $28 trillion in September 2021, and the debt-to-GDP ratio was 136%, the highest in history. This is 20% higher than the rate 119% at the end of World War II in 1946.

The dollar printed by the U.S. and the Fed at a frightening pace will lose its scarcity value. The simple logic that certain assets lose value if they lose scarcity was clearly revealed in the case of Honey Butter Chip, which once hit South Korea. The value of the dollar began to decline sharply as complex macroeconomic problems in the 'global village' were added.

Last fall, producer prices in China hit an all-time high as China, the 'world's factory', suffered from coal supply and demand amid a trade dispute with Australia. The rise of China's producer prices could mean a rise of consumer prices. Concerns about
'stagflation' have expanded, with inflation and economic recession occurring at the same time.

To make matters worse, the war between Russia and Ukraine began in March 2022. The specificity of the war between the two countries, which served as 'energy sources' and 'grain warehouses' in the international community, ignited the global inflation. Russia is a major natural gas exporter in the world. Ukraine, and Russia on the other hand, are the major grain producer in the world. According to the Food and Agricultural Organization of the United Nations, Russia and Ukraine have been responsible for one-third of the world's grain exports.

The war between the two countries has led to a surge in oil prices and grain prices, which are classified as 'raw materials' in modern society, and the feared inflation has become a reality. In February 2022, the U.S. Consumer Price Index (CPI) jumped 7.9% from the same month last year, exceeding the highest in 40 years. The PCE price index, the Fed's preferred price index, also jumped 6.4%, more than three times the Fed's target. In the case of developing countries, the situation became even worse. The Wall Street Journal also reported news that the price of bread in Kenya jumped 40 percent. The global economy, which used to revolve around the dollar, began to creak with a red light.

In this situation, the U.S. Treasury Department and the Fed, which had repeatedly said, "inflation is temporary," changed their attitudes as if they did not say anything. The Fed raised its key interest rate by 50bp and heralded the announcement of quantitative austerity (QT), saying, "We are touching the 'hatchet' to attack inflation." As if frightening inflation had been deliberate, the Fed took action.

The value of dollar based on the implied belief on dollar in the world was also cracked.

The U.S., which had criticized Russia's invasion of Ukraine, imposed economic sanctions on Russia and decisively declared Russia's foreign exchange reserves frozen. Russia is the world's fourth-largest holder of dollars based on energy exports. The decision to freeze the dollar held by Russia was an act of creating a rift in the trust that the dollar could be continuously circulated and used. The world watched the U.S. froze the foreign exchange reserves of Russia. The decision was made to destroy the value of the dollar that supported the U.S.

The dollar's value the implied belief, which began to collapse due to inflation, plunged further by the freezing of Russia's foreign reserves.

# Digital Yuan Targeting for the Cracks in the Dollar

In this situation, China took action against the dollar. In March 2022, it was revealed that the Saudi government was discussing the exchange of crude oil transactions with China from dollars to yuan. The dollar has been known as the 'petro dollar' as the only settlement method for crude oil trading. However, China, which has emerged as an 'emerging powerhouse' in the international community and has been in negotiations with Saudi Arabia to replace the price of crude oil transactions with yuan since 2016. China has targeted the gap in complicated interests such as the U.S.'s refusal to support Saudi Arabia's involvement in the Yemeni civil war and nuclear negotiations with Iran. Currently, China is known to be a 'big hand' that purchases more than 25% of Saudi Arabia's crude oil. If the transaction is made in yuan, the formula of 'Petro Dollar' will collapse. However, this case is not just a matter of replacing oil payments.

The Chinese government introduced digital yuan (e-CNY) to the world along with the 2022 Beijing Winter Olympics. After about 11 years of development research led by the Chinese government, 'Blockchain-based Service Network (BSN)' had been completed network in 2019 and tne Chinese governmment released digital yuan to the world based on the network. The digital yuan is said to be installed on WeChat, a 'national messenger' with 1.2 billion users per month, and has exceeded about $13.6 billion in transactions so far. An official from BSN Korea said, "The Chinese government are striving to spread and utilize the digital yuan through active distribution such as lending the digital yuan free of charge."

# The Essence of Capitalism, The Rapid Capital Consumption

After all, the ultimate goal of the ruling class, which controls capitalism, and the financial system, is the 'capital circulation through rapid capital consumption'. It can be said that a fast capital cycle, that is, a fast capital remittance system, is the system that capitalism needs the most.

The collapse of the dollar means the collapse of SWIFT(Society for Worldwide Interbank Financial Telecommunication), which moved around the dollar. The reorganization of the new world order and the emergence of new remittance technologies heralds the current era of new capitalism. It is calling for the replacement of SWIFT. At the same time as Russia's exclusion of SWIFT, the emergence of BSN with digital yuan, and the emergence of Bitcoin(BTC), called 'Digital Gold', and various blockchain technologies with fast remittance as slogans, are the factors to be carefully examined.

The U.S. military and political influence are still regarded as the best in the world. From this point of view, it is possible to predict that despite the collapse of the dollar, the United States will create a new dollar system optimized for emerging capitalism.

At one time, the dollar chose the gold standard in 1944 under the concept that $35 was linked to an ounce of gold through the Bretton Woods system. Although abolished due to the U.S. trade deficit, the emergence of Bitcoin, a 'digital gold', can be reminiscent of the revival of the gold standard. In addition, the U.S. is currently actively working on Bitcoin mining. At 2021, due to China's total ban on Bitcoin, many mining sites in China have moved to Texas, Russia, and Kazakhstan in the U.S.

In 2022, the U.S. Treasury Department imposed sanctions on Russian-based mining sites, and many of them are withdrawing Russia and moving it to the U.S. The Proof of Work(PoW) Algorithm is a mechanism that mines cryptocurrency through computing power and has authority over it. If a single subject occupies a hash rate of 51% or more (computing power used for mining), the network can be controlled. The U.S. is trying to secure a hash rate by attracting large-scale Bitcoin mining facilities in Texas. This situation may be interpreted as the U.S. trying to revive the new gold standard through Bitcoin.

The 'digital gold' Bitcoin has the advantage of playing the role of an excellent value repository with limited quantities and the disadvantage of difficulty in use at the same time. From this point of view, something corresponding to 'money' is needed to complete the new gold standard. A system that enables fast remittance, which is the purpose of capitalism is needed.

Currently, the biggest weakness of blockchain network remittance is that it is impossible to recover assets remitted only for wrong remittances. By supplementing this, attention should be paid to the blockchain network that adopts the 'Chargeback' technology, which allows money to be returned immediately for misdeposit.

The dollar and SWIFT, which are slowly on the decline, are network battles that enable fast and comfortable remittance transactions.

권승원 기자 ksw@