In the world of technology, operating systems are the foundation upon which all other applications and programs run. They are the backbone of computing and mobile devices, providing the necessary framework for them to operate seamlessly. Each OS is a world, governed by its own physics, laws, and boundaries.
Lately, software OSs have become the battle ground for regulators, app store vendors, and app store owners. The competition for platform supremacy has become a winner-take-all. The money, resources, and court-time spent on OS related-issues continues to snowball. Each OS is a world where the OS owner is God and God is conquering the New World just as the Spanish did.
In the realm of global finance, the US Dollar has long been the preferred OS, just as Apple’s iOS is preferred by wealthier economies, businesses, and advertisers. The key word here is preferred, as opposed to most prevalent. Let’s bookmark, this preference vs. prevalence dynamic for later.
The US dollar is very much a winner by becoming the preferred OS and was also the most prevalent for some time. Dollars are easy to move, everyone wants them, uses them. The best technology runs on banking rails that touch US or EU banks.
- Oil is in dollars.
- Interest rates are based on the US Rates set by the US Federal Reserve.
- The most liquid assets are dollar denominated.
- The most powerful banking institutions live in dollars.
- Most foreign treasuries use dollar reserves.
- Sending money P2P/B2B is easiest in dollars.
How did this happen?
The short version:
Allied victory of WWII
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US financing programs post-war
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“Spheres of influence” Cold-War strategy.
However, as with any technology, there are challengers to supremacy. In the case of the US Dollar, commodity rich nations, new-money (crypto), and China's own financial OS have been grinding away at the old Dollar OS.
iOS lends users an ecosystem that makes their information, payments, and fulfillment frictionless.
The US Dollar does the same via its massive network of investors, central banks, and financial institutions that rely on it for trade and investment. This dominance gives the US an enormous advantage in the global economy, enabling it to access capital, maintain economic stability, and influence international relations. The US government and central bank are acutely aware of this advantage, and they often act out of self-preservation or self-interest.
So what other operating systems exist, or even, co-exist?
The Euro
The Euro, much like Android, is prevalent, yet a second-tier operating system. The Euro faces numerous challenges, including political friction and economic weakness. While the Euro has been able to provide some competition to the US Dollar, it has not been able to dethrone it. If anything the Euro is a symbiotic partner to the Dollar, providing an international on-ramp into Dollar OS. Coexistence.
Commodities
The most important on-ramp to the USD are commodities. Commodities are also the most viable weapon to challenge Dollar OS. How do sanctioned countries gain access to dollars? Commodity sales, narcotics sales, loans based on future commodity sales. States that can’t monetize their resources into dollars have to turn to other operating systems.
Chinese Renminbi/Yuan
China's currency, the Renminbi, is often seen as the next great challenger to the US Dollar's dominance. China has the world's second-largest economy and is becoming increasingly integrated into the global financial system. As China's economic power grows, so does the renminbi's influence, and it has been steadily increasing its use in global trade and investment.
However, the renminbi still faces several challenges, including restrictions on its convertibility, lack of transparency, and concerns over political interference. Additionally, the Chinese government's pseudo-authoritarian control over the economy and financial system raises questions about the renminbi's stability and credibility. China has also made unique efforts to establish financial relationship with developing countries via its Belt-and-Road initiative, expanding their OS with a freemium style model.
Another key factor here is China’s role as a buyer of commodities. The largest buyer.
Belt & Road + China’s commodity buying power = leverage.
Belt & Road is China’s Lend-Lease.
Technology, Sanctions, Regulations
Cryptocurrencies, have proliferated and on their potential to disrupt the traditional financial system and how individuals hold value. The theoretical value of cryptocurrency technology undermines the US Dollar's role as the world's preferred reserve currency.
The rise of the internet of things (IoT) has also challenged the traditional channels for liquidity, which has further weakened the US Dollar's dominance. The IoT has enabled the creation of decentralized finance (DeFi) platforms, where users can borrow, lend, and trade cryptocurrencies without the need for intermediaries. DeFi platforms have the potential to disrupt the traditional financial system, making it easier for individuals and businesses to access capital and providing greater transparency and efficiency.
Moreover, the emergence of NFTs (non-fungible tokens) has created new markets for digital assets, further decentralizing the channels for liquidity. NFTs represent unique, one-of-a-kind digital assets that can be bought, sold, and traded on blockchain networks. This has created new opportunities for artists, musicians, and other creators to monetize their work, bypassing traditional gatekeepers and intermediaries.
Legacy IoT platforms like StockX and eBay are proven marketplaces with live pricing. On-ramp into physical goods, and off-ramp into USD platforms/banks. These platforms allow individuals to appraise, buy and sell rare collectible items, further challenging the traditional financial system.
To protect the US Dollar's position, the US government and central bank will continue to take steps to maintain economic stability and prevent any threats to its dominance. This includes implementing monetary policies, such as interest rate adjustments and market operations, to stabilize the economy and prevent inflation. The US government will also continue to use its OS influence policy via sanctions and jurisdiction over US assets/accounts.
In light of these developments, the usefulness of the "Dollar OS" is being challenged. The US Dollar's dominance as the world's dominant operating system has provided the US with significant advantages in the global economy. However, the emergence of decentralized channels for liquidity, such as DeFi platforms, NFTs, and online marketplaces, presents a significant challenge to the Dollar's position. The US government and central bank will need to adapt to these new challenges, implementing policies that enable the US to remain competitive in an increasingly decentralized financial landscape.
While the US Dollar's position remains strong, the future of the global financial system is far from certain, and the US must be prepared to adapt to these new challenges to maintain its position as a global economic superpower.