Russia’s invasion of Ukraine is proof that the world can’t have nice things and harkens back to a potential post-war settlement that could see cryptocurrencies take a more central role in the evolution of decentralized money.The dollar may be the global reserve currency today, but not so long ago, the US was actively trying to promote and prop up another reserve currency, backed by another empire — the British pound.
And after the Wall Street Crash of 1929, France lost faith in the pound as a store of value, selling it heavily on the global markets, a move that was soon followed by the US. But prior to the 19th century, the amount of global trade was very low, so exchange rates were generally not a matter of great concern.
High tariffs, particularly on manufactured goods, were almost universally a feature of mercantilist policy. From the end of Bretton Woods in 1971 right up to the turn of the century, some of the conditions that could have fomented a fresh currency war were in place, but countries generally had other priorities and at no point were there enough states simultaneously wanting to devalue, for a currency war to break out.
From Europe to the US, Turkey to Thailand, inflation is threatening to stoke the fires of an entirely different type of currency war, which has the potential to dramatically upend the global monetary order. The Bank of Japan has kept interest rates near zero, as price pressures there have been relatively mild and Tokyo is keen to ensure that economic growth is stimulated.
But even if central banks raise rates, there’s no guarantee that their currencies can square off against the rising greenback as evidenced by the continued decline of the pound against the dollar, despite the Bank of England raising interest rates in tandem with the Fed.Image: Pexels Weaponising the dollar in this way, the US and its allies risk provoking a backlash that could undermine the greenback and fracture the global financial system into rival blocks that could leave everyone worse off.
And while the Russian invasion of Ukraine has yet to spillover into a wider continental war in Europe, mainly because Moscow appears to lack the resources to wage such a conflict, the impact of punitive financial measures against Russia could plant the seeds for an upheaval of the existing global monetary system.
“The Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades.”