Last night, Russia launched an invasion of Ukraine. Complexity abounds in the geopolitics, national security, and financial markets involved in this conflict. A few thousand words would not be enough to fully explain the complexities of the situation and its repercussions.
Rather than rehash the events of the last 24 hours, I’d like to focus on a few things that are on my mind this morning instead.
First and foremost, war is a deplorable phenomenon. Millions of people suffer greatly as a result of violent conflict and the resulting death toll and destruction of their livelihoods. It is the average citizen who has no desire for war and was not a participant in the events leading up to it who suffers the most. Every Russian and Ukrainian citizen’s safety should be presumed, but I’d like to add my voice to the chorus. Because we live in the United States, my family and I have the luxury of not having to worry about other countries firing missiles at us or launching an invasion.
A significant shift in the geopolitical order appears to be taking place right in front of our eyes, as well. Vladimir Putin’s decision to invade Ukraine is a bluff to the United States and NATO. They lack the political will to impose harsh enough sanctions, and he also understands that the citizens of the member nations have no desire to go to war with each other. Nine Chinese Air Force planes entered Taiwan’s airspace this morning and a warship violated Taiwan’s defense zone, as China continues to escalate its threats to Taiwan.
Weak American protectionism in various regions has given Russia and China an opportunity to expand their global power. They see this as a way to gain more influence in the world. Even though I’m not an expert in geopolitics, it is impossible to overlook the significance of these events, particularly when viewed through the lens of a global confidence game.
And last but not least, Russia comes in as the world’s third-largest oil exporter. Around 12 percent of the world’s total production comes from them. As Brent oil prices in the United States and around the world have risen significantly in recent months, President Trump has requested that more oil be supplied to the market in an effort to keep prices from rising even further. Russia and Saudi Arabia have both stated that they will not increase production, putting the United States in a difficult position. Brent oil prices have risen significantly since the news of the Russian invasion and are now trading at well over $100 per barrel, further complicating the situation.
When you take into account both the increase in oil prices and the continued purchases by international customers, Russia is profiting handsomely from its invasion. Our dependence on foreign oil producers has made it impossible for the US and its allies to stop buying it for an extended period of time. However, the importance of energy independence can be clearly seen at this time. I won’t play Monday morning quarterback on those prior decisions.
Fourth, the United States and its allies are likely to impose a wave of financial sanctions in response to Russia’s actions. Taking Russia out of SWIFT would be the most significant step. Sanctions could also be imposed on Vladimir Putin and a number of other senior Russian officials. It would be naïve of the international community to believe that Russia hasn’t war-gamed this situation in advance, regardless of the specific sanctions.
Because of Russia’s large foreign currency and gold reserves, a lot of people don’t realize it.
At the end of 2020, they had the fourth-largest market share behind China, Japan, and Switzerland. As soon as sanctions are imposed, they will have access to $600 billion in foreign currencies and gold. Now, I’m not sure what Russia has in mind, but it’s clear that they’re willing to risk the possibility of crippling economic consequences in the process. Alternatively, they have a strategy to avoid the crippling sanctions imposed by the United States and NATO.
And with that, I’d like to conclude. For many years, the United States has produced and distributed the world’s reserve currency. Being in that position gives us the power to impose financial sanctions on those who offend us or who go against our conception of right and wrong. In order for financial sanctions to have an impact, they must be applied to a specific individual or group. These sanctions may not be as effective as they were previously because Russia has a large amount of foreign currency and gold.
It’s time for the United States to start thinking about what to do if large swaths of the world don’t use the US dollar as their reserve currency.
Russia and China, two countries that have long stated their intention to leave the US dollar system, may decide that the costs of using the current global reserve currency are too high. Rubles or renminbi’s are unlikely candidates for the role of new global reserve currency. There is a lack of global support, as well as a general challenge in persuading the world that these new nation states will not repeat the mistakes of the previous nation states..
We arrive at bitcoin thanks to game theory. You can’t produce and distribute the global reserve currency, but you can be the most advanced user and holder of one that no single country controls. All the more reason for them to recognize Bitcoin’s importance now and for the foreseeable future. In the long run, the countries that have a large stake in the cryptocurrency, as well as mining and other pro-bitcoin activities, will have a significant advantage.
The US dollar should not be abandoned by the United States. The production and distribution of the world’s reserve currency should be further optimized. When you’re in that position, you’ll feel secure and in control of your surroundings. We must, however, begin to take some precautions. We need to get insurance. NOW! Even if our leadership believes that the US dollar may no longer be the global reserve currency in 50 years, we should position ourselves as a leader in that very small possibility.
Bitcoin should be included in the reserves of the United States’ central bank. As many bitcoin miners as possible should be encouraged to relocate to the United States immediately. Bitcoin should be taxed like any other currency, and the capital gains tax should be abolished. It’s time to teach Americans about decentralized digital currency. It will take years to complete these steps, but it is critical that we begin now.
Many lawmakers in both the House of Representatives and the Senate are working on these proposals. Many more are needed. The current geopolitical situation will be referred to in history textbooks in the years to come. No matter how unlikely we think it is, we must be prepared for the worst-case scenarios and show compassion to those who suffer as a result of war. At the same time, we must remain adamant in our opposition to the aggressors.
In light of the current situation, I wish everyone a pleasant day. When you see your loved ones, give them a big hug to show how much you care. For the most part, those of you who are reading this are in the same position.
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