The death of the US dollar crowd is consistent. Being wrong for decades certainly doesn't hinder their enthusiasm.

Unfortunately, these people are about a century out of date. The old rules no longer apply. That said, even the ones that were in place are misread and completely mangled by most people.

We are in the digital age. This might have gone unnoticed by some. This means that we are dealing with a new basis of how things operate. Money was affected as much as anything else, a fact overlooked by the masses.

Does this mean the US dollar will remain the global reserve currency forever? No. There is an end game. However, it is not quite how people expect.

Of course, outlining what happens requires enormous speculation. Predicting the future with regards to technology is difficult. With the advancement of how things are unfolding, it is near impossible to see how this will evolve.

The New Reality of Money

We all heard "the printing press goes brr." This is a favorite of the death of the dollar crowd.

Here is where we have the first challenge. Central banks do not print currency anymore. The amount of transactions that occur in physical dollars is miniscule. For the US, most of that activity occurs outside its borders since almost 3/4 of all banknotes are in foreign lands.

The quantity theory of money was disproven decades ago. Milton Friedman wrote deeply about this topic. What is passed over in his work is that he didn't talk about the quantity in isolation. Instead, it was the rate of currency expansion compared to the growth of economic expansion. If the latter exceeded the former, then the increase in money supply was warranted.

When the Fed engages in its "easing", it does not create legal tender. Digital reserves are not dollars. Instead, they are bank instruments that can be redeemed for physical dollars. The problem is the banking system will never redeem them for banknotes. Is JPMorgan going to house $750 billion in $20 bills? Not a chance.

Basically the Fed is creating digital financial instruments that lack velocity. The utility is very limited. There is no broad economy penetration due to the fact that holders require a Master Account with the Fed. Again, this is not legal tender.

It is a closed loop which these "dollars" operate within. The true impact is psychological, the primary tool central banks use today. Their monetary policy is useless since they do not control the money supply. It is pure theater.

The New Basis Of Money

When the Internet was introduced, many were touting the new economy. This was the belief that the digital economy would take over.

Obviously, this was a bit early since it took decades for this to evolve. We are near the point now where there is validity to this idea. That said, there is still a large basis of physical economy that still usurps the digital.

When it comes to money, it is no longer about quantity or even rate of growth. None of that matters. These ideas are not congruent with the digital realm, where money now overwhelmingly exists.

Digging into the basics of the digital world reveal something very interesting about money, especially the US dollar. The entire basis boils down to network effects.

This is it.

We see this clearly in the social media world. It is also evident with online shopping. Notice how a few entities dominate. Over time, these effects become self-feeding, increasing the flywheel effect that is enjoyed.

Money falls into the same lines.

In the digital world, there is no limit. This means the numerator, in our inflation equation, is nearly infinite. How much can be bought online?

For example, how many version of the song "Paint it Black" by the Rolling Stones can you buy from iTunes? The limit is not number but, rather, bandwidth.

When looking at a currency, what are the network effects it enjoys? Here is where the US dollar's dominance is evident. We have it being the FOREX pair at an 88% clip. Forex derivatives are 75% USD denominated. Invoicing is done overwhelmingly in USD. The US treasury market is the largest and most liquid.

In short, nothing is close.

Remember how this becomes self feeding. A newer technology, stablecoins, are starting to take hold. Guess which currency they are being issued in?

USD-to-Post Monetary Society

What will knock the US dollar off the throne?

The answer is not "nothing". We are going to see a change. That said, it is not going to be another currency in my view. At least, it will not be something that we commonly think about when we hear that term.

I think the USD will carry us to a post-monetary society. When this happens and what it will look like is open to a wide range of speculation. The honest answer is we have no idea how things will be when we get there.

Technology is deflationary. This means that anything that gets blasted by technology gets cheaper over time. We saw this with compute, something that is now equating to units of cognition. The entire premise of knowledge work is being disrupted.

My best guess is that "currency" will be tied to energy. This means the USD could be replaced by kilowatts or joules. One thing we have to resist is the tendency to apply what we know about the economy to this future time. There is no guarantee that transactions will operate in the same manner.

The digital world is one of abundance. Our economy's central premise is scarcity. Here is where the two worlds are going to collide. Technology is rapidly moving us towards abundance.

What role does currency have? What about money? Is it something that is even necessary?

Today, we can only forecast what we believe. The reality might be different.

For now, the important take away is we are looking at an expanding digital world. The next decade will see that enter into the physical. The net result is abundance.

That means the laws of the Internet are in play. Since the winners are determined by network effects. we can apply the same premise to money.