The de-dollarization alarm bells continue to ring, as Venezuela and Iraq are the latest nations to announce their intentions to de-dollarize.

Nicolas Maduro, the leader of Venezuela, announced earlier this week that a currency shouldn't be used to sanction or punish other nations, and stated plans to abandon the dollar for international trade.

Meanwhile, the Interior Ministry of Iraq declared that any transactions involving the US dollar will now be illegal, with a fine of up to one million Iraqi Diners and a year imprisonment for violators.

Venezuela and Iraq are just the latest countries to announce plans to reduce their dependence on US currency. In a previous post, I listed some other countries that are also in the process of de-dollarizing.

USD Hanging By A Thread

The problem for these governments is that while they attempt to rid themselves of the dollar, their own citizens are still demanding it, because their own currencies are weakening rapidly.

Given the financial predicament that the United States is in, one might wonder why there's so much demand for their currency, which is mathematically doomed to fail.

The short answer is that the Fed has managed to raise interest rates all the way to 5%, generating temporary demand for the dollar. Despite nearly doubling the money supply since 2020, it continues to be the cleanest shirt in the laundry basket, compared to other fiat currencies. But for how much longer can it hold on?

People suffer from recency bias - just because dollars were accepted yesterday, means that they'll be accepted tomorrow. However, what's most important is that we consider the trend of countries and states dropping the US dollar in favor of alternatives.

Small Nations Adopting Crypto

Back in 2021, El Salvador was the first country to adopt Bitcoin as legal tender. It would seem that president Bukele and his government understood the monetary predicament the United States is in, and chose to give their citizens another currency to transact in.

By the way, you can follow my experience paying with Bitcoin in El Salvador here on Hive.

The following year, in 2022, Central Africa Republic was the second sovereign nation to adopt Bitcoin as legal tender, with the government claiming the move would improve the lives of Central African citizens.

Bitcoin isn't the only cryptocurrency that countries are thinking about adopting as legal tender. Considering the potential business opportunities, the leader of Saint Kitts announced that they might make Bitcoin Cash legal tender sometime in 2023.

I don't think it will be long before we see other countries and states making cryptoccurencies like Bitcoin, Litecoin, Dash, (Hive?), and others legal tender in their local jurisdictions.

States Taking Sides On CBDCs

It would seem the United States federal government is feeling rather threatened by the acceptance of cryptocurrencies in foreign nations, and is trying to prevent further adoption in their own country by quietly passing legislation.

In early March, South Dakota was the first state to veto a bill that would have put a ban on cryptocurrencies (other than Central Bank Digital Currencies).

Kristi Noem, the governor of South Dakota, said that the new law would have put the state at a business disadvantage and allow for government overreach. According to her, similar bills are making their way through twenty other state legislatures.

In May, Florida governer Ron DeSantis signed legislation to make CBDCs illegal in his state. I believe he recognizes that cryptocurrencies like Bitcoin are competition to a CBDC, and therefore the federal government wants to keep them at bay.

That same month, South Carolina unanimously passed legislation banning CBDCs, or the possibility of the state participating in a CBDC pilot program, like the one occurring in New York.

Meanwhile, Texas senator and crypto-proponent Ted Cruz has also proposed legislation to prevent the Federal Reserve from launching a CBDC. This month, Texas also introduced legislation to make CBDCs illegal in their state.

But the question remains, if the dollar is on the way out, and these states are banning CBDCs, what's the alternative?

States Re-Adopting Gold As Legal Tender

Gold has been considered true money for thousands of years. In fact, the US dollar used to be backed by gold, until president Nixon completely dropped the standard back in 1971, setting the world up for the limitless expansion of fiat currency we see today.

As US dollar inflation continues to rage, and the unsustainable fiscal policy of the US government pushes relentlessly forward, many state and business leaders have been advocating for a return to the gold standard.

In fact, there are currently 23 U.S. states that are in the process of readopting gold as legal tender in their jurisdictions. I wouldn't be surprised to see some of these states issue digital currencies backed by gold on public blockchains.

As the banking crisis worsens, it's likely that the contentious issue of CBDCs, crypto and gold-backed currencies will break apart the once "United" States of America. Other large nations such as China, Russia, and Brazil, could break apart too as smaller locals choose to adopt cryptocurrencies or try to create their own.

However, I very much doubt that slow and bureaucratic governments can hope to compete with public decentralized cryptocurrencies, which the smartest engineers have already been involved with for years.

Countries Quickly Acquiring Gold

Not only are US states rushing to reinstate precious metals as legal tender, but some foreign nations are in the process of doing the same thing.

Zimbabwe has recently been selling gold-backed tokens to investors, despite warnings from the IMF. The tokens are backed by almost 140 kilograms of gold, and are supposedly meant to bring stability back to the nation's currency.

As I mentioned in the previous article, there are a lot of countries ditching the US dollar in favor of the Chinese Yuan. According to reports, the Chinese have been loading up on gold for years, and especially in the last few months, leading to speculation that the country is preparing to launch a currency backed by gold.

Moreover, a Russian official announced that the BRICs countries are planning to launch a currency backed by gold and other rare-earth elements. This could explain why other central banks have also been loading up on gold recently.

Preparation

As a world citizen caught up in this unfortunate situation, what can you possibly do?

Gold bugs are hoping for a return to the gold standard and would recommend that you load up while the price is still low. I think precious metals should make up a small portion of portfolio.

I predict we'll see some smaller nations and states launch their own digital currencies backed by gold, quite possibly on public blockchains. So it'll be important to keep on a eye on these types of announcements.

While the idea of a gold-backed token on a public ledger is a good one, the problem has always been counter-party risk. How can we trust the custodians of gold, especially in a "shit his the fan" scenario?

Cryptocurrencies, on the other hand, have no counter-party risk, and belong to you and only you, so long as you control the private keys. Therefore, I recommend holding a variety of reputable cryptos, some of which I have written about here on my Hive blog.

You will also want to be located in a crypto-friendly jurisdiction such as El Salvador, CAF, Saint Kitts, South Dakota, Texas, Florida, etc, etc. Surely more countries, states and cities will be added to this list as time goes on.

Conclusion

At this point there are only two shitty options. Either the banking system continues to implode due to high interest rates, or the value of fiat currencies get wiped out by a return to low rates.

The globalized system that's been built-up over the past few decades will continue to fracture as the fiat system falls apart. More and more people are going to protest against these plans to launch CBDCs, and opt for gold-backed currencies or cryptocurrencies instead.

It would seem that we are currently in the eye of a hurricane. People still find safety in the USD, for now. As either bank failures or hyperinflation switches into high gear, we're going to see people desperately looking for alternatives, and that's when the value of solid cryptocurrency projects (and gold, to a degree) will rise dramatically.

No, the US dollar won't collapse overnight, it's a process that takes decades. But keep in mind that the US government dropped the gold standard in 1971, over fifty years ago. We've been experimenting with unlimited QE and ZIRP for over 14 years now, and half the money supply has been created in the past three years.

The adoption of crypto doesn't happen overnight either, but Bitcoin has been around for fourteen years now, and Ethereum for nearly eight. Small nations are already adopting cryptocurrencies as legal tender, and the trend towards further adoption will accelerate from this point on.

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