Market analyst Jim Rickards edits the Strategic Intelligence newsletter and, in 2017, he made several predictions about the financial markets in the coming years, specifically mentioning March of 2019.
Among these predictions, was a new term that caught the attention of investors: the Dollar Reboot Composite. (Specially the last term. Everyone wants to find out what the composite is.)
In this article we take a (very) summarized look at what the Dollar Reboot Composite is and how it may still be relevant for the future.
According to Rickards, the current financial system will have to undergo some drastic changes in order to stay functional.
One of these changes would be to “reboot” the US Dollar.
If you don’t come from the world of computers, perhaps you don’t recognize the term “reboot”. Booting a computer means turning it on and waiting for it to load the necessary programs (OS, etc) to make it usable. The term stems from the phrase “pulling oneself by the bootstraps”, where the computer pulls itself up to functional state. To reboot means to restart the computer, shut it down and let it go back to an initial functional state. You usually must reboot the computer when some serious error happens.
Rebooting the dollar means resetting it to a “functional state”. As you browse social media, especially the more libertarian circles, you find more and more calls to reset the dollar.
How, exactly, would the dollar be rebooted? By going back to a standard. Not gold, but a special mystery composite.
(At least one Forbes analyst had speculated it could, indeed, be gold.)
According to Jim Rickards, the US Dollar will go back to a standard that is based on a special composite.
Not gold, not Bitcoin specifically, but some composite index which would serve as a tether of the US currency to something easily audited.
What, exactly, then is the dollar reboot composite?
I speculate it may be either a variable metal bag or … cryptocurrency.
The PMC Ounce is a bag of 4 precious metals that is dealt under units equivalent to one ounce.
Today, the 4 metals are silver, palladium, gold and platinum.
At the time of this writing the PMC Ounce was worth U$ 124.43
Using multiple precious metals instead of just gold makes more sense than the pre-1970’s standard. The first question one asks when thinking of adopting a metal standard is: why choose one metal? Why should gold determine the value of a universal currency that can be used to settle any debt? It used to be the case that gold was rare and safe to store – both requirements for a value store. But, if those are the requirements, then you could adopt diamonds, niobium, palladium and countless other materials.
A bag, then, makes more sense than choosing just one. The metals could vary and change, while maintaining the 1 ounce unit standard.
Several sources have speculated that the reboot composite could actually be a bag of crypto.
While it has been denied by some with knowledge of the composite that it’s not specifically Bitcoin, a mixed bag of valuable cryptocurrencies has not been ruled out.
The top market cap cryptocurrencies are rare, mostly secure (as far as we know) and can therefore be used as a store of value.
The US could, then, adopt a bag of variable cryptos as its monetary standard. Since cryptos are auditable, the blockchain is public and immutable, it’d promote absolute transparency in the monetary emission process. It would become impossible to “print money” indiscriminately.
The main question remains: would the Fed and Treasury subject themselves to computer algorithms instead of economist-made decisions?
Another possibility would be to mix several classes of assets to form a safe store of value.
A mixed bag of precious metals and top cryptocurrencies could be one such possibility.
In this framework you could include precious stones as well.
The idea is that no single store of value represents the economic reality, so a mixed bag would better represent the potential of the world’s reserve currency.
We don’t really know whether it might, much less when.
In fact, a potential dollar reboot would mean a complete overhaul of present day financial systems, because the dollar isn’t just a currency, it represents an entire financial architecture. If the dollar were replaced today, it’d likely be substituted by something similar to the dollar itself, under similar operational rules.
The only real contenders as dollar replacements seem to be gold and cryptocurrencies at this point in time. So whether this dollar reboot refers to these two assets, it’s yet to be seen.
So far, we’ve seen big rumors of a global currency reset in 2019. This never happened. Then, again, rumours surfaced of a July 2020 dollar collapse. Which, as we now know, didn’t happen. Every now and then social media will speculate on when the big reset could happen but it just keeps getting pushed forward. The only currency revaluation we saw in 2020 was billionaires like Jeff Bezos breaking all previous wealth records while stock markets soared beyond all time highs.
A global economic reset would require something different which, as far as we know, isn’t in the horizon just yet. Unless, of course, Bitcoin or a 4th generation cryptocurrency such as Avalanche AVAX could be the new standard.
I hope this short ELI5 article has cleared up the concept of the dollar reboot and what the mystery composite may be.
At the time of this writing the prediction that President Trump would make the change in 2019 has not become true.
This could be due to the fantastic bull market seen until now, which could have delayed President Trump’s decision to reboot the dollar.
Or the reboot may not come at all.