Something Very Specific and Major that Nobody Talks About...

[Hodor]

...is xrp's potential for being used as "reserves."

I came across this article that discusses the concept of "forex reserves:" http://www.nbdpress.com/articles/2017-06-08/2632.html

Before reading this article, I've heard the concept of xrp "reserves" being purchased by individual companies or market makers as a tool for managing risk and being able to profit from volatility.  (source: _https://www.xrpchat.com/topic/5280-valuation-models-xrp-the-digital-currency-vs-ripple-the-company/?do=findComment&comment=50182_)

The concept was always part of a larger topic, and I guess I made a mental note and just kind of said to myself "Well, yeah, that would be cool.  I wonder if that would happen with a large retailer like Amazon that does international commerce."  I left it there in my thinking, like a shiny bauble that might get my attention again at some point in the future.  After all, I'm focused on the big fish - the possibility of RCL taking over for SWIFT.  

And then I read a simple group of words from this article, and realized I'd been missing the power of a concept all these years.  Here's the snippet:

Quote

The forex reserves stood at 3.05 trillion U.S. dollars at the end of May, an increase of 24 billion U.S. dollars from that recorded at the end of April, the State Administration of Foreign Exchange (SAFE) said.  SAFE attributed the continuous rise of forex reserves to stable cross-border capital flow and appreciation of the non-US dollar assets following a weaker US dollar.
A rapid fall of the reserves and a weaker yuan against the US dollar since mid-2015 had raised concerns about the vulnerability of China's financial system.

Did you catch that amount of USD that China uses for the sole purpose of ForEx?  3.05 trillion. 

The Concept

Nation-state federal reserves will usually carry the main unit of currency used to make ForEx transfers.  And currently, US Dollars are the de-facto currency used to do those transfers.  

What is SAFE?

Quote

The State Administration of Foreign Exchange (SAFE) of the People's Republic of China is an administrative agency tasked with drafting rules and regulations governing foreign exchange market activities, and managing the state foreign-exchange reserves

(source: https://en.wikipedia.org/wiki/State_Administration_of_Foreign_Exchange)

USD is Currently King of Reserves
So how do we arrive at how much USD some other countries might just "store?"  To do this, we need to compare the relative size of China's economy with other nations, and do the multiplication.  Let's do this with a few different countries where Ripple has already established trade pairings:

  GDP of China: 11,218,281 ---> 3 trillion in reserves

  Japan: 4,938,644  ---> 1.3 trillion in reserves?
  UK: 2,629,188 ---> .7 trillion in reserves?
  India:  2,256,397 ---> .6 trillion in reserves?
  South Korea: 1,411,246 ---> .37 trillion in reserves?

Basically, we can roughly estimate that these combined countries store approximately 6 trillion USD in reserves.   

Also, consider the fact that I'm not even considering businesses within these countries.  Large companies tend to want to keep their own reserves of USD for exchange as well.  And these companies can store very large quantities of USD in their corporate treasuries as well.  I don't *think* nations would ever store a digital asset issued by a private company as a reserve, or if they did, it would be for boutique purposes most likely.  A more likely scenario under the current system would be central reserves creating their own IOU on RCL.  

However, we can use the concept of "reserve" to understand how very large companies might want to snap up XRP at large quantities.  

So now, go back to the articles here on XRPChat where JoelKatz was talking about the concept of "reserves," and now three of his points should make more sense:

Quote

6) Now, say you're a company like Seagate that pays out money all over the globe. If you have to make payments to five countries in our corridors, you'd rather hold one pile of XRP than five piles of different currencies. That increases demand.
7) Now, say you're a company like Apple with a huge pile of cash. If you want to snap up other assets cheap, you'll need to hold the asset the people selling want. If they're going into any of our corridors, they'll want XRP, so you would want to hold it.
8) If that succeeds, it should massively increase the price of XRP.

(source: _https://www.xrpchat.com/topic/5280-valuation-models-xrp-the-digital-currency-vs-ripple-the-company/?do=findComment&comment=50182_)

This is the way currency "reserves" work now for nations - and for large companies - and it is a very exciting prospect for XRP!  

What About the Future For World Reserve Currencies?
There is a possibility that XRP could play a role in national reserves: In an exciting development, a report by the UN Conference on Trade and Development calls for abandoning the US Dollar s the single reserve currency.  It says that the new reserve system should

Quote

not be based on a single currency or even multiple national currencies but instead permit the emission of international liquidity to create a more stable global financial system.

(Source: http://www.reuters.com/article/us-dollar-reserves-un-idUSTRE65S40620100629 )
The report goes even further:

Quote

The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

IMF Connection to Ripple
So now we see the connection to the IMF, and now we can understand much better what Chris Larsen (and Ripple's) role *might* involve with the IMF Advisory Committee.  

If the SDR's are going to operate using a "basket of currencies", what technology do you think is best for representing that basket using an IMF-backed, redeemable IOU?  

Seriously?  This type of usage couldn't be a better fit for RCL and XRP.  

 Is your crypto portfolio on the right side of history?  

 

###### DISCLAIMERS ######
THIS IS NOT INVESTMENT ADVICE
PLEASE DO NOT TRADE CRYPTO WITH LEVERAGE
I DO NOT HAVE ANY INSIDE INFORMATION
I STILL OWN MTG CARDS

Edited June 9, 2017 by Hodor

[PRX]

Please start your own blog sir; thanks so much again for the post

Edited June 9, 2017 by PRX

[Hodor]

2 minutes ago, PRX said:

Please start your own blog sir

Yeah, it might be time. 

But I love xrpchat!  

[wiredless1]

12 minutes ago, Hodor said:

After all, I'm focused on the big fish

Dear Herman Melville, It appears you have found a bigger whale.

[Hodor]

1 minute ago, wiredless1 said:

Dear Herman Melville, It appears you have found a bigger whale.

 

[Coinseeker]

Fantastic post.  

[Ivanium]

1 trillion in ripple market cap means 26 dollars each ripple this will be amazing

[Hodor]

2 minutes ago, Ivanium said:

1 trillion in ripple market cap means 26 dollars each ripple this will be amazing

Sometimes people's thinking is limited based on what is, rather than how quickly the world economy is changing.  Value in the new economy is very much determined by value attributable by the parties involved....  

All it's going to take is a small sliver of this volume and content, and then it will be too late to jump on the XRP train... way too late! 

[ZIGXRP]

When you're ready for another mind bender, let your brain consider the concept of Ripple servicing not money, but DEBT. 

[Aziraphale213]

@Hodor

Way before I "entered" the Ripple XRP world and joined this forum as well as you guys I mastered economics and always found myself thinking I am not thought the whole story. In the meantime I grew up and researched a lot about the history of money, monetary policies, money systems our world has passed through and this research lead me to, among other, SDRs. 

So, ever since we moved to the FIAT system the world reserve currency became the Dollar. From that point on (the seventies If I remember of the top off my head) that basically meant that for ANY country in the world to buy let's say oil they would first need to exchange their local currency to U.S. dollars and then buy oil. This basically meant that every nation in the world has the demand for dollars - which in fact means that the dollars value has profited extremely from this system. That sole fact, as well as military power in my opinion has enabled the U.S. to build a "credit economy". If you look at economic theory you can easily conclude that with such a large trade deficit, public depth and a few other things the U.S. should be weaker than it is. But this is not the case as the dollar has such a high world demand. I am not saying the U.S. is not a "super economy" but I am saying that that they would not do so good if we had a different world monetary system. 

So that's why we currently have such high dollar reserves mentioned by @Hodor.

My research also brought me to the SDR. It was created back in the 60s. It has been transformed a couple of times and the last I checked it's value should be calculated by the following: 

1. 25% reserves in precious metals (gold, silver...)

2. 25% in natural goods (like oil, coal, iron, copper....)

3. 50% basket of currencies (dollar, british pound, euro, japanese yen, and as of 2016 chinese yuan)

I also found out that this is the potential future world currency. 

In my opinion it is no wonder and this is precisely the reason that the U.S. is producing so much oil while loosing money (the "war" with OPEC is not the issue here I think) and also why China is buying so much gold in the last decade. I can't wrap my head arround Britain and I will try to research how maybe the Brexit is favoring them for this shift. There is a whole "fight" in the background between east and west, US centric states and B.R.I.C.S. states that you can find out. You can see it unfolding in dropping the dollar between China and Russia natural gas and oil trade for instance. Unlike conspiracy theories I simply believe this is just an attempt to be in a better position at the "SDR table" once this shift happens because as you can see only 25% of the value of SDR will be their national currency so they have to strenghten their / weaken opponents position. 

When I first researched Ripple my first thought was that this system will be ideal to conserve value. If you assume it will be used by a lot of banks in the near future it basically means XRP can be converted into any currency secure, fast and efficient. In addition XRP has a finite number of money (100 billion) which means it cannot go down on value by creating more XRP in the future. This is one of the main weak points for FIAT money, it is constantly loosing value. You can see it by prices for various goods rise all arround us. This is "natural" only because of the FIAT system. If we had for instance the gold standard there could be a finite amount of dollars that are redeemable in gold reserves the state has. In that system the currency could over time rise in value - which basically means that the gold would constantly rise in value. The gold trade today is really manipulated (you basically do not need real gold to trade but contracts and FIAT money which HAS to be accepted - do your own research). 

So XRP thus immediately reminded me of "digital gold". It cannot be created it will (possibly in time) be adopted by the financial system which means you can exchange it to any currency (quickly and securely) and over time and growing usage it's value will rise. It is also the perfect medium for it's main purpose, the transaction system as you will need lower and lower number of XRP for transferring FIAT money. (if it's value is 1 dollar you need 100 xrp to transact 100USD, if it is valued at 100 USD you will need 1 XRP for the same transaction). This in fact means it will be always capable to use for transactions despite it's finite number of supply. 

If the technology behind RCL/XRP stays relevant / strong I do not see another way but this one for XRP.

I am confident that a lot of people realize this, especially ones working for the big financial players and will have interest to hold a certain amount of XRP as the RCL system grows in use. 

I can already give an example valid today - Venezuela. If I was living there and had a decent amount of money I would buy BTC at this point as it would be a greater store value than FIAT, especially Venezuelan currency nowadays. BTC isn't regulated and does not cover a lot of aspects RIpple/XRP does but at this moment in time it would be a great store value for the sh*t going on in that country. Now consider that you had 10 000 banks using RCL, corporations also....wouldn't it be a great store value? 

I yet have to do my research and thinking how would all of this play out in comparison to the SDR, should it become the world reserve currency at first but I conclude that there will be a heavy interest to hold XRP and the interest will grow as it's ussage grows.

However this will play out think from the perspective of the little guy - these transitions are always implemented during crisis times and devaluation of currencies. If the XRP system grows in the meantime where would you go for safe haven?  The trick is that XRP today costs 0.xy and tommorow it won't. 1kg of gold costs you 36.000 dollars today and a lot of people cannot afford it

I tried to share my broader opinion of why I first saw a value in XRP which later brought me to the technology behind it, as well as all of the actions they are undergoing through.

 

 

[Hodor]

5 minutes ago, ZIGXRP said:

When you're ready for another mind bender, let your brain consider the concept of Ripple servicing not money, but DEBT. 

Ah yes...

Here is a mind-bending graphic that gets at "sitting value" (not value of transactions) of assets:

http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/

[BusTransporter]

@Hodor- I like the thought process behind your analysis.

 

It makes sense in so far as the people they have on board as well for Ripple the company.

To take the current scenario with Fiat money and it's use -case for the USD$ currently;  and translate it into the cyber currency world- all being done legally and through the proper jurisdiction

 

Even though the current system is failing, the crypto world is just beginning.

 

It also explains the amount of existing XRP's.

 

Selfish note: I hope that XRP's value translates into a bit more than 1USD$

 

 

Thanks for the insightful theory, @Hodor

[Hodor]

4 minutes ago, Aziraphale213 said:

If the technology behind RCL/XRP stays relevant / strong I do not see another way but this one for XRP.

I am confident that a lot of people realize this, especially ones working for the big financial players and will have interest to hold a certain amount of XRP as the RCL system grows in use. 

I can already give an example valid today - Venezuela. If I was living there and had a decent amount of money I would buy BTC at this point as it would be a greater store value than FIAT, especially Venezuelan currency nowadays. BTC isn't regulated and does not cover a lot of aspects RIpple/XRP does but at this moment in time it would be a great store value for the sh*t going on in that country. Now consider that you had 10 000 banks using RCL, corporations also....wouldn't it be a great store value? 

I yet have to do my research and thinking how would all of this play out in comparison to the SDR, should it become the world reserve currency at first but I conclude that there will be a heavy interest to hold XRP and the interest will grow as it's ussage grows.

@Aziraphale213 I came across so much depth when researching this concept last night that I made a note to dig in deeper when the IMF Advisory Committee picks up steam.  I think that larger bank adoption will beat them to the goal line, quite frankly, and I see large international trade companies like Amazon and Ali Baba being potential users / holders of XRP reserves.  It just makes sense if they want to finance ultra-cheap international settlement of transactions. 

I haven't even really considered oil companies, derivatives, debt, or commodities though.  It's a new technology, and we are still so early on the adoption cycle for XRP.  

[wiredless1]

6 minutes ago, Aziraphale213 said:

When I first researched Ripple my first thought was that this system will be ideal to conserve value. If you assume it will be used by a lot of banks in the near future it basically means XRP can be converted into any currency secure, fast and efficient.

Excellent writing. Good food for thought. Thank you.
It's value is not only in its content but that it's written in a way that allows uneducated readers like me to begin following up with research because of the questions it implies or asks.  I appreciate this approach.

An over-arching currency question: what if the US dollar were removed from your commentary and the term Bitcoin were inserted, could the arguments of use still not apply?  The specific "Bitcoin" is used as the digital currency equivalency of traditional fiat (which implies an agnostic fit for XRP through RCL & ILP) but if a different standard for liquidity and reserves other than the dollar or Bitcoin were used, does it change your thesis for use value?

[wiredless1]

9 minutes ago, Hodor said:

I think that larger bank adoption will beat them to the goal line, quite frankly, and I see large international trade companies like Amazon and Ali Baba being potential users / holders of XRP reserves.  It just makes sense if they want to finance ultra-cheap international settlement of transactions. 

Agree. I'm assuming that a single "unit" XRP asset can be divided multiple times. I've read that, if I remember right. It seems a bit like extending the infinite value of pi to how a finite quantity of product can be leveraged for universal use over time. Even the "destruction" of a percentage of its value is negated if a unit can be continuously (and consistently) parsed.  Am I wrong with this assumption of possible division and increased use for XRP? (Even a link on the concept, if you've come across one, would be enough for me to study the nuances.)