We’ve written before about how economic catastrophes often start gradually, then suddenly accelerate into utter chaos.
Now it’s time to apply that idea to a different topic: de-dollarization.
Mike Maloney surmises that the dollar will, at first, slowly be replaced by alternatives as the global reserve currency. Then, after alternatives build momentum (e.g. BRICS nation currencies), they could get adopted “suddenly.”
It’s an idea Maloney called “S-curve rejection”:
In his 1926 novel, The Sun Also Rises, writing on how one goes bankrupt, Ernest Hemingway famously wrote, “Gradually and then suddenly.”
This is the basis for Mike Maloney’s notion of ‘S-curve rejection’.
The S-curve is a widely used graph to depict the pace of various processes.
In terms of adoption, this would mean that the acceptance of something new starts very slowly, builds critical mass, then picks up speed suddenly until it has very high adoption and then begins to slow.
The S-curve is a widely accepted and used model to describe technological innovations. Its shape is derived from two inflection points – when “gradually” becomes “suddenly” (and vice versa).
We’ve talked a lot about the global de-dollarization drive. Maloney’s concern is that we’re nearing the first inflection point.
This has to do with the network effect. Put simply, it works like this:
- An increased number of participants improves the value of a good or service
- Conversely, fewer participants lower the value of a good or service
The inflection points indicated above show what happens when a network gains (or loses) a critical mass of participants.
In other words, every nation that dumps the dollar lowers the residual value of the dollar network.
This is only one signal that could be reflective of other countries that are vying to have their currencies (individually or collectively) dethrone the dollar.
Let’s take a deeper look into this idea…
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