We have further evidence of a global shortage in US dollars. This is something that most find impossible since we know the Fed "printed" so many dollars over the past year. Unfortunately, since these are the ones who fail to understand how the system operates also miss the solution.
For roughly 18 months we were beating this drum. There are many areas where it is showing up. We now see a decision citing the direct cause of the problem: USD liquidity.
The reason why this shortage is so vital is because it has nothing to do with actual currency. This all stems from the off-shore, shadow banking system. Here is where balance sheet constraint enters.
Over the last year, we discussed many options relating to money and Hive. We offered up the idea regarding the Hive Backed Dollar (HBD) and how crucial it is. This was also expanded to the concept of Hive Bonds, an asset that can truly target the global problem.
Let us take a look at what is happening and how we can solve it.
India-Bangladesh
India and Bangladesh are now going to trade in their local currencies. This will get the de-dollarization brigade going strong. These people will claim this as evidence of why the USD is going to collapse and you best buy something else like gold. Sadly, people will listen to this.
The US dollar has a liquidity issue. This stems from the balance sheet constraint in the Eurodollar system which is stunting global trade. Here we have a prime example of how it works.
From the article on bitcoin.com:
Bangladesh and India have decided to conduct trade settlements in their own currencies, bypassing the dominance of the U.S. dollar. According to sources from the Bangladesh Bank, the decision was made due to the issues of liquidity in foreign currency that Bangladesh faces, which are disrupting the flow of imports to the country.
The foreign currency that is being referred to is the USD. The liquidity issues means that these countries are not being de-dollarized. Instead, they are being de-dollared. They simply cannot get a hold of the dollars needed to conduct trade.
It is another point we covered repeatedly. A currency is backed by the economic productivity tied to it, including trade.
Collateral Based System
We have to point out that there is no currency involved in these transactions](/@@leoglossary/leoglossary-transaction). When discussing a shortage of dollars, we are not referring to banknotes. This is a system that is run on ledgers. That means balance sheet assets that can be collateralized for liquidity when needed.
A lot was made by the de-dollarization crowd about the BRICS. Yet, in the same article we see this:
Other countries have also substituted the use of the U.S. dollar to settle bilateral trade transactions recently. Argentina decided to pay for Chinese imports using the Chinese yuan in order to safeguard its dwindling dollar reserves. Brazil has already completed its first yuan-based settlement with China, and BRICS nations will discuss the issuance of a bloc-wide currency to substitute the U.S. dollar.
These countries are facing dwindling dollar reserves, which is US Treasuries.
Perhaps we need to briefly cover what this means. US Treasures are held by a countrys central bank. This allows them to provide "dollars" to their commercial banks. Those assets can usually be liquidated on the market if the cash is ever required.
Once the central bank can offer the US liquidity, the commercial banks can allow their customers access to USD. Again, this is not physical currency but rather US dollar denominated assets. Here they can enter the international market and make payments. This can occur for either trade or debt repayment.
As the "dollars" dry up, there is a a problem. Of course, we are discussing minimal totals. The Repo market is $.4.5T-$5T per day. We can presume the bilateral market is somewhere close to that. Thus a few billion each year (or even day as in the case with oil) is a drop in the bucket. The challenge is that trade is suffering.
Enter HBD and Hive Bonds
Cryptocurrency in general is the solution to the global liquidity problem at this level. Blockchain is ledger which makes it a perfectly viable monetary system. The ability to create assets that have market value exists, as seen by the $1 trillion that exists already. We need to see this expand, especially on the lending end of things.
One of the most powerful aspects to HBD is that it has the potential to expand the USD in circulation yet has no tie to it. This currency is not being backed by US Treasuries or cash. It is, instead, simply following the Eurodollar model and using the USD as a unit of account. This is crucial.
Since HBD is tied to HIVE, the "backing" is essentially the market capitalization of that currency. That means as the desire for HBD increases, it will have to force the market cap of HIVE up. The two are linked. Massive expansion in HBD can only come from conversion of HIVE. That means it has to be purchased first, driving up demand.
Here is where identifying the different layers. This does not solve the trade problem. What this does is replace the target market that CBDCs are going after. We bring a digital solution to people who are in countries where they try to access USD but in banknote form. In other words, we are dealing with individuals.
Taking this to the Eurodollar level requires Hive Bonds. This is what will expand the balance sheet capacity. When creating an asset that can act as collateral for loans. we now are rivaling the international banking system. We have an asset that has a transparent lineage in terms of how it was created, the interest it pays, and when it matures. All of this can be tied to the blockchain.
At the same time, we have counterparty risk limited only to the blockchain. There are no third party entities to concern ourselves with.
If we want to contrast that with a stablecoin such as USDC, who is behind that? What happens if Circle goes out of business? Another problem is that USDC is backed by Treasuries. Hence, we are dealing with the same problem while also ignoring that Circle can be taken over.
None of this exists with HBD. Sadly, few realize the solution that is at hand since most do not truly understand the system and how it works. What is discussed on CNBC or Bloomberg is not covering the real situation. They talk surface level stuff that has little bearing upon what is truly taking place. It is probably why most do not make money long term since what is promoted by the financial media is mostly nonsense.
It is become clearer as time passes. We are mired in rut that is driven by a shortage of money.
People think inflation bad, deflation good. Unfortunately, when the effects of deflation, a contraction of money, takes place, it gets nasty for the average person.
Once again, Hive solves this problem.
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