An analysis of Donald Trump’s Crypto Tweet (2/2)

On Thursday, 12 July 2019, U.S. President Donald Trump communicated via Twitter several statements regarding Bitcoin and other cryptocurrencies. Donald Trump’s passionate statements contain truths, assumptions as well as dubious hypotheses about future developments of the newly emerging currencies.

The overall notion of those tweets being straightforward, he however does not offer any form of reasoning. Except for the second point, that entails at least partially a reference to the argument whether cryptocurrencies are money, each subsequent point as presented in the following is merely an isolated statement. As such, these points can be true or false, which implies that since there is no line of reasoning, the burden of proof lies with the audience.

Because of the novelty of crypto-assets, there is no unanimity regarding their impact in socio-economic developments In a two-part series, the Future Citizen Institute will contribute to provide insights and clarification on this matter.

In the first part of this two-part series, points 1) through 4) have been critically evaluated. The second part sees a focus on the last seven statements of his crypto-tweets.

5) Facebook’s stablecoin Libra will have low dependability

6) Facebook and companies with similar intentions must seek a new

banking charter, therefore becoming subject to standard banking regulation

7) The US have only one real currency, the US dollar

8) The US dollar is stronger than ever

9) It is dependable & reliable

10) The US dollar is by far the most dominant currency in the world

11) It will always stay that way

5) Facebook’s stablecoin Libra will have low dependability

To evaluate a system’s dependability, “[…] a collective term for the time-related quality characteristics of an item”, it is necessary to evaluate its attributes, of which there are many. Among these are availability – to be in a state to perform as required –, reliability, maintainability and an organisation’s effectiveness in respect thereof, as well as durability, safety and security. Since there is only a short White Paper available and no empiric data regarding any of the criteria mentioned above, Trump therefore speculates about Libra’s dependability and potentially takes the wind out of its development’s sails.

6) Facebook and companies with similar intentions must seek a new

banking charter, therefore becoming subject to standard banking regulation

An institution the might of the Libra foundation and its powerful members should indeed be subject to regulation. Whether that should necessarily be banking regulation, a different already existing regulation – such as the SEC or the CFTC –, or whether it has to be a novel approach as there still is uncertainty regarding what type of asset class the stablecoin Libra in fact is, is yet to be explored.

7) The US have only one real currency, the US dollar

38 of the U.S.’ 50 states do have numerous so-called community currencies, for instance in the Berkshires region of Massachusetts. The BerkShares currency was launched in 2006 and currently has about 410 locally-owned participating businesses that accept BerkShares. They are pegged to the US dollar and offer customers who acquire them a 5% discount. In return, they can be used by accepting businesses to purchase goods and services from other participating businesses, and thus contribute to circulate and keep value in the region.

Naturally, it is understood that these local currencies are not tradeable with other currencies than the US dollar. However, cryptocurrencies do not aim to replace the dollar. They would function in a mode similar to community currencies, potentially custom-built for a sector, a certain asset-class or a socio-economically homogenous region.

8) It is stronger than ever

This statement is incorrect in many regards. If one opens the dollar index spot on Bloomberg and chooses a timeframe of five years, it is easy to see that at the turn of the years 2014/2015, 2015/2016 and 2016/2017 the US dollar was stronger than now. Not only this, also the fact that the US suffers from their trade deficit – amongst other reasons because of the relative strength of the dollar – clearly signals the intention behind the statement. It is constant rhetoric and persistent erosion of quality. Donald Trump does not want a strong dollar and even lobbied the Federal Reserve to cut interest rates which would lead to cheaper and therefore more loans to be granted by banks and the Fed, quickly weakening the dollar.

9) It is dependable & reliable

As delineated before, the dependability of a currency is the consequence of a complex interplay of a multitude of factors. Since especially socio-economic factors determine the value of a currency, and President Trump being a volatile influence behind cultural and socio-economic developments, claiming it is dependable and reliable means that he believes to understand his role and knows he will be a stabilising factor in the short and middle term, i.e. for the duration of his incumbency. “The US dollar” itself cannot be held accountable; domestic and global individual decision-making processes and their scaled effects are, however, determining the circumstances that the dollar “tracks”, which means it is an index and thus cannot be attributed these qualities.

10) The US dollar is by far the most dominant currency in the world

It is indeed. Since the U.S.’ economy has historically been the world’s leading economy, after the de-pegging of the dollar from gold, it has become the “gold standard” of the currencies. There are about US$1.5 trillion in circulation as compared to €1.2 trillion from the Eurozone. However, not the mere amount of currency in circulation is critical but its socio-economic influence. Oil, for instance, is globally traded in U.S. dollars; more than 25 countries use de jure and de facto the dollar for their official and daily business.

11) It will always stay that way

Currencies may be seen as indices for socio-economic developments, both for microeconomic decision-making as well as the unfolding of complex macroeconomic events over time. Their price reflects past moves and also future expectations, including speculations. They can only coincidentally reflect the present’s accurate quantified value of the interplay of the underlying complex system’s factors. This means that such a statement is both intuitively and after reflection again to be dismissed as rhetoric statement, a sophistry.

Trump ends on a speculative note as he wants to create the dogma – a culturally shared belief – of a forever-dominant United States of America that has the means to determine future global events, amongst other means via its currency.

Decentralised cryptocurrencies might interfere with the status quo of the U.S. money system, either positively or negatively. It is indeed advisable to be cautious regarding mass-adoption generally and especially if the scaling happens overly aggressively. From this perspective, Donald Trump’s pessimism as regards cryptocurrencies might perchance give researchers and entrepreneurs the time they need to debug the new currencies.

Author: Patrick Lehner