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On the way to the Blockchain-based Global Stable Currency and Financial Ecosystem

On the way to the Blockchain-based Global Stable Currency and Financial Ecosystem
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By SV Advisory Group

The Bretton Woods Conference of 1944 resulted in the establishment of a brand new world order with International Monetary Fund becoming the leading financial institution in setting regulations for financial endeavors, US exchange rate getting tied to gold reserves and the majority of other currencies becoming heavily dependent on the US dollar.

The US, one of the winning allies and the country that avoided having active military actions on its territory, became the leader of the Free World and dictated relatively stable currency exchange rates that benefitted the international trading and contributed to the overall stability of the new global system.

Noble ideas of changing the world

In the aftermath of WWII, opinion- and decision-makers, politicians and celebrities pursued noble ideas of putting an end to discrimination, strived for the elimination of segregation and directed their resources and power into making the world a more secured, integrated, fair and global place without wars and military conflicts through different international and supranational organizations. One of their goals was to turn transnational investment flows into foreign direct investments (FDI) that would create more work places and build factories overseas and help to avoid different currency manipulation schemes.

Inequalities and instability were one of the main triggers of military conflicts both inside the nations and between them. Cordell Hull, the US Secretary of State, saw free trade without high tariffs and barriers that led to unfair economic competition between the states as one of the ways of creating peaceful cohabitation: “If we could get a freer flow of trade, freer in the sense of fewer discriminations and obstructions, so that one country would not be deadly jealous of another, and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance of lasting peace.”

Having seen the distractive force of war, national governments of the leading states realized the necessity to establish preventive mechanisms and systems of checks and balances that would enhance economic cooperation and unions and demotivate them from going into war. Despite noble efforts however, corruption and exploitation of the system started to appear. 

Inconsistent economic policies and unrealistic exchange rates

Unrealistic currency exchange rates occurred as the first signs of structural disequilibria in states’ reluctance to maintain consistent economic policies. Political leaders and different lobby groups have started to see new policies as a threat to the stability within their countries due to direct impact they had on certain economic groups. It resulted in unrealistic official exchange rates that created temptations for speculations on the market. When revaluation occurred, currencies were shifted from weak to strong as the means to get profit. In cases of revaluation absence, monetary authorities were able to return to other currencies without any loss. Such speculations with immense sums of money were greatly destabilizing the new economic order.

The privileges the US dollar enjoyed as the global currency soon caused dissatisfactions of other political powers after the acceptance of a more pluralistic approach in power distribution in the world. The US, technically being able to determine the level of international liquidity through its deficit, influenced economic conditions of European nation states and Japan and exploited politically-motivated campaigns (military activities and foreign aid) around the world without any constraints, having its currency bought by other countries.

Military expenses and generous foreign aid caused imbalance in fiscal expenditure by Johnson’s administration. It resulted in the Nixon Executive Order, or also referred to as the Nixon Shock, that untied the US dollar from the golden peg, turning it into the fiat currency that was not backed by any assets. That decision was made without consulting members of the international monetary system or the US State Department, amid the dollar glut in the 1960s.

The downfall of Bretton Woods

It was eventually agreed that a new global financial ecosystem needed to be developed in the realms of a new century. The first reconsideration of the Bretton Woods was proposed during the G20 summit in Pittsburgh on 24-25 October, 2009, hosted by the US President Barack Obama. The resolution went down the history as the Pittsburgh Agreement, in which attending states outlined the realignment of currency exchange rates and agreed that deficit nations could devalue their currencies and surplus nations could revalue theirs upward, respectively.

November 10, 2017, marked another important step in reconsideration of the Bretton Woods. At the “Next 70 years. The Bretton Woods Roundtable” well-known political leaders and economists raised their concerns over having a single national currency as a universal in the complicated, multi-polar, globalized and interconnected world. It was almost unanimously agreed that excessive regulations precluded the global economic development and for that reason should be avoided.

George Goognin, the blockhain entrepreneur, the founder of the Karma cross-border p2p blockchain platform and the founder of the blockchain experts’ chamber at the Russian Parliament with the aim to legalize the cryptocurrencies in Russia, was amongst the attendees of the November  roundtable discussion. He had a very strong opinion about the cause of the meeting and considered overcentralized regulations with unstable exchange rates and uncontrolled issuance of fiat money to be the main problem behind the collapse of the modern economic order. He believed that decentralized and transparent open source technologies were the key to solving the existential crisis of Bretton Woods.

Emergence of Lotus Mile

In his search of appropriate algorithms that would reform the system, Goognin discovered Lotus Mile, who was very mysterious and unknown without any trace of her whereabouts and real identity. In addition to that, she proposed a number of brilliant ideas.

Global collaboration on money issuance are one of the key fields where blockchain-based technologies could be implemented as the money minting algorithm is the same for private individuals and governmental agencies alike. Its ecosystem is transparent, decentralized and fair, and limits fraudulent manipulations with currency rates and volumes of issued money. 

Since IMF SDR is already established as a universal index, it is being kept as the value measure. As for the demand index, a special coin Mile was proposed with the aim to measure the demand. In situations when all XDRs are kept by individuals, companies or governments, buying MILE and depositing it into the blockchain is the only way to mint more XDRs. There is a direct correlation between the number of times MILE was bought and its price: it grows proportionally, and, consequently, more XDRs are being minted from the emission centers with its growth.  

Due to the fact that XDR has a stable price and growing supply and Mile has a growing price and stable supply of 1 billion, the equilibrium formula is as follows: MILE/XDR = (amount of XDRs used in real economy)/1 billion.

The coin’s emission depends on the internal blockchain consensus based on 10.000 distributed masternodes’ permanent voting in order to provide a smooth MILE/XDR rate. As nodes receive 8-13 percent of annual interest rate in XDRs from the blockchain, they are motivated to maintain the MILE’s rate adequacy to satisfy as many individuals possible and make XDR the most reliable tool. Its graph is being kept smooth over the time by nodes supported by a built-in blockchain algorithm of noise filtering and sliding curve approximation.

Right now, the road to a stable blockchain currency and financial system seems rough… and it is. Don’t be fooled though by the chaos of shadowy speculation in the cryptocurrency markets. The real meat of this technological revolution is going on behind the scenes, being built into and through the systems and processes already powering the world’s economies.

“You can google just about any large financial institution and the word “blockchain” and you’ll almost assuredly find that they have already begun exploring the tech and producing product lines around it. Visa, for example, has their “B2B Connect” system, J.P. Morgan Chase has their “Blockchain Center of Excellence”. The hype is all centered on the most immediately tangible aspect to the consumer-at-large. The wild swings of the Bitcoin markets make regular headlines, but what’s really going to change how the global financial ecosystem works will be the underlying technologies being developed. Distributed ledgers will allow multiple parties to maintain verifiable synchronized data across large pools of information. The consensus algorithms required for maintaining these ledgers create efficient means of allowing secure, fair, trustless updating and tracking of distributed data. Virtual machines inside the ledger allow for execution of code alongside transactions. Here at LannisterDevelopment we are founded on the belief that blockchain technologies are a key to the future of global enterprise as an integral part of the Web 3.0 future and beyond. The potential for distributed ledgers, consensus algorithms, and trustless verification to impact global currency uses and the overall financial ecosystem simply cannot be overstated,” says Christopher Brown, he is the CTO of Lannister Holdings, Inc. an Arizona based, publicly traded software development company dedicated to deploying Web 3.0 solutions into real-world environments.

The high inflation parameter is explained with a zero amount of XDRs at the start, what faces community with the task to mint a lot of coins fast. Its rate will be lowered to common 1-2 percent by masternodes’ consensus over time, after a couple of hundreds of billions of XDRs have been minted.

Some will argue that Bitcoin may be used for that purpose, however, it is too slow and expensive for the mass implementation. As opposed to XDR that is designed in a way to have zero transaction fees that are built into the masternode inflation, they require up to 20 seconds to make the transaction minted at the speed of 10.000 transactions per second. That makes it more convenient for the daily use.

Blockchain-based XDR as a future alternative

Existing international monetary system suffers from vulnerabilities and systemic risks that became apparent after the world economic crisis. Zhou-Xiaochuan, a former China Central Bank director, addressed IMF with the necessity to “create a reserve currency based on shares in the body held by its 185 member nations, known as special drawing rights, or SDRs.”

Blockchain-based XDR is the foundation of the open digital source IMF 2.0 with consensus-based inflation rate and decentralized distribution of the money-minting centers around the globe. Its reliable and honest algorithmic nature creates opportunities for it to become the reserve currency that could be used for trade, pricing commodities and accounting, in addition to government finance.

Since XDR can be a powerful tool for constructing an entire fintech vertical with banks, funds, exchanges and money remittance and building uncensored and KYC-based apps, governments have already expressed their interest in such algorithm that is similar to the TCP-IP Internet protocol as it can be used to avoid political sanctions and allows any state to print money, attract investments and simplify the cross-border trading.

The XDR’s advantage over fiat money and cryptocurrencies is in the fact that it entirely belongs to the society. It is a multi-national, open-source product that is already being used and minted by the users and has no boundaries.

The Mile Foundation

The Mile Foundation, a non-profit organization dedicated to educating people about new financial technologies and helping them to apply these skills in real economy all across the world,  is being created with the aim to support the development and real-life application of XDR.

Launching an Embassy in the most active countries is seen as a short-term goal of the blockchain community. Each Embassy will attract its diverse representatives with hackahons, seminars, donation-based co-working spaces, roundtable discussions between governments, civil society, business and tech community members.

First ambassadors have already been elected in South Korea, China, India, Germany and Russia with the teams currently undergoing the process of establishing their legal presence and registering offices there. Building up networks and partnerships with intergovernmental organizations, government officials, top tech universities and liquidity markets is seen as priority for the upcoming months.

Conclusion

In her recent interview, Christine Lagarde, current IMF director, admitted that reaching a consensus within the global regulatory community on the role crypto-assets should play is an important initial step and added that “international cooperation will be essential [due to the fact that] crypto-assets know no boundaries.”

Silicon Valley venture capitalists expressed their view on the XDR algorithm, calling it unstoppable, and addressed the US government with the request to make an official statement regarding it following an example of IMF that spoke in favor of replacing fiat currencies with crypto.

It should be mentioned that Russia and China, countries with the best cryptography school and the largest reservoirs of money, have been looking into the possibility to create a new global fair currency since 2009. One can only imagine the possible outcome of such collaboration with the potential to undermine the leading position of the US dollar. Who will join the power redistribution?

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