I invested a lot of time last week in writing a technical paper on the economic implications of stellar and why it is the best investment in crypto. I initially bought in at .4 cents so I've been since the subreddit had 7000 redditors. That was only 2 months ago but still pretty cool. Anyway I wanted to post key giveaways to that paper since it didn't receive much attention at all. First let me define terminology to help the layman.
Definitions:
Cost of Adjustment: the balance of payments adjustments between debtor countries and surplus countries.
Debtor country: A country that imports more than it exports.
Surplus country: A country that imports less than it exports.
Deficit: When a country imports more than it exports, usually in a certain time. (yearly, monthly)
Surplus: When a country imports less than it exports, usually in a certain time. (yearly, monthly)
National Account: Accounting technique to record all transactions within a country.
National Savings: the sum of private and public savings . Basically money left over after consumption for both private individuals and the government.
Zero sum game: there are only winners and losers.
Fiat currency: A money that has no intrinsic value (like the dollar).
Bretton Woods: The monetary system that existed before fiat, in which every currency was pegged to the dollar, which was then pegged to gold (which has intrinsic value).
Commodity backed currency: A currency backed by a commodity with intrinsic value (like Gold or Silver or the crypto Petro dollar haha).
Essentially countries all have national accounts that tell us their transactions like imports and exports, and this allows us to gauge the financial health in a country. The reason is because a country that has too much debt will be riddled with higher unemployment rates and lower ouput levels (think Greece). So essentially everywhere in the world you will always have debtor and surplus countries because someone needs to do the importing for all the exporting going on. It's the same principle as crypto when day trading. I don't want to give the impression that trade is zero-sum, however crypto day trading is zero sum.
Anyway, many people compare crypto to gold as a stable and scarce source of value. People are attracted to bitcoin because it steers away from fiat currency however people don't realize that fiat is incredibly new and is actually more innovative than the old commodity currency method. This old method was directed under the Bretton Woods system and the Gold Standard before it, where Gold ruled all. However, this stability made it very risky to keep exchange rates at parity. Let's look at a theory called the impossible trinity where you can't have all three aspects in a currency: sovereign monetary policy, free capital flow, and fixed-exchange rates. The UK tried this in the early 1990s by keeping the pound in the European exchange rate mechanism (fixed exchange rate). However, the government also allowed for free capital flow (meaning people could take pounds out of the country), and sovereign monetary policy (the Bank of England could set interest rates). The results was a disaster that sent the pound spiraling downward because it violated the impossible trinity (Black Wednesday- https://en.wikipedia.org/wiki/Black_Wednesday). It could only maintain any 2 of those 3 aspects in its currency but couldn't maintain all three. Italy also attempted to use this strategy in the 1990's to organically devalue the lira. Unemployment in Italy was rampant and they wanted to devalue the lira to make exports more competitive since Italian goods could be cheaper on international markets (since the lira was depreciating vs other currencies). Italy was also in the exchange rate mechanism (fixed exchange rate), allowed free capital flows, and was still in charge of its interest rates (no Euro at this time). As a result, the lira finally devalued as seen in the below chart.
https://fred.stlouisfed.org/series/EXITUS
Now the whole point of this is to show how important monetary policy of any kind is to the stability of a country. Even in a system that promised price stability like Bretton woods, we got even worse price corrections because speculation wasn't priced in adequately. A free floating system has proven more resilient to market shock. Honestly, when is the last time you saw the dollar drop 20% overnight? Need I remind you when Switzerland unpegged the Franc in 2015 and appreciated by 30% in a few days? Now, given that exchange rates still shift even under fixed exchange systems (this is what crypto strives to be), there is still some systemic risk in speculation and currency volatility. This volatility is unwarranted since we are essentially maintaining the same risk as fiat without the monetary tools of sovereign monetary policy (setting interest rates).
This is the reason why so many governments are concerned with crypto. It removes a tool but maintains the same preceding risk. Governments need interest rates in order to adjust national account balances and control national savings. If we get a laissez faire situation where a government starts exporting more than everyone else, then crypto doesn't allow us the tools to devalue and remain competitive viable sovereign nations. Of course you may think that this does not matter if every country has bitcoin since they should have the same cost of production in international markets, however let me give you one example: GREECE!
Greece and Germany have the same exact currency and should theoretically enjoy the same competitiveness in cost of production but they don't at all. The cost of living and import/export competitiveness diverges dramatically creating a cost of adjustment where Germany essentially takes employment and output levels from other Euro countries because it has more savings and enjoys a surplus relationship with other countries.
Now unlike Ripple stellar is totally inflationary. Transaction fees in stellar are distributed to an inflation pool, whereas with Ripple transaction fees literally obliterate ripple. Inflation is an incredibly important tool not only to encourage spending, but to at least align Stellars monetary growth with the rest of the world (Fiat). Inflation allows for loan and debt instrument creation that spurs economic growth. It is incredibly important which is why sovereign nations have it as a monetary tool. What I am trying to say is that stellar seems to have the only true vision of integrating their platform into the existing fiat system rather than trying to fight a losing battle, in order to prove an idealistic libertarian viewpoint. This, apart from the low transaction costs, high transaction speed, and convertibility with fiat is what really makes Stellar competitive. The decentralized nature is also an added bonus along with necessary inflation. Stellar isn't meant to be a national bank that enacts sovereign monetary policy but the inflation rate is near perfect for a viable currency (there is a reason the Fed always strives for 2% inflation).
I know most of this paper focused on political economy and fiat but it attempted to explain why the idealistic vision of most crypto currencies is just not feasible. This allows us to gauge for cryptos that do align with the real world which are stellar and ripple. In the last paragraph I at least explained the positives stellar has over ripply and that was only a few.
My full paper is in this link: https://www.docdroid.net/mBkV3wM/stellaressay.pdf
I hope you enjoy!