• Craig Harbour, Senior Digital Marketing Executive at Webevents


• 27.10.2020 07:15 am
bitcoin , payments

Ever since the establishment of a global monetary system in the wake of World War II, the world’s economy has been centred on the US Dollar (USD) as the single most dominant reserve currency.

However, the recent economic climate has seen a number of experts predict that the dominance of the USD might be in decline, thanks primarily to America's diminishing share of global trade and the expansion of China’s monetary power (the country currently owns an estimated $1.1 trillion of US debt).

At the same time, Bitcoin has evolved as a viable safe haven asset, and one that continues to mirror the price performance of gold. But could the poster boy for cryptocurrency ever be replaced as the USD as the global reserve currency?

Why Bitcoin is Unlikely to Replace the Greenback Any Time Soon

For some experts, the USD remains on the brink of losing its position as the world’s global reserve currency, with assets such as gold and the aforementioned (and increasingly similar) Bitcoin apparently leading the charge to claim this status for themselves.

However, people have been predicting the demise of the dollar for some time now, with the greenback having actually survived more significant declines and sell-offs than it has experienced during 2020.

For example, the US Dollar Index (DXY) fell by 10% to a 16-month low of 101.75 between March and August. While this represents a stark decline, the Index slumped to 72.70 in May 2011 and declined by 20% in  just 12 months following the fall-out from the great recession.

At the same time, gold effectively served as the world’s reserve currency prior to the Bretton Woods Agreement in 1944, only to be linked to mass inflation and problems for nations with sustained trade deficits.

For those who have suggested that Bitcion could replace the USD, it’s important to note that the greenback is currently backed by a huge infrastructure and the world’s most transparent government bond market.

According to forex strategist Marc Chandler, this represents a stark difference between the USD and Bitcoin, with the former often accumulated alongside US government bonds that provide a more secure store of wealth.

This has been borne out by the fact that both Japan and China hold combined U.S. Treasury securities worth $2.33 trillion, while a staggering $7/04 trillion worth of secured US debt is held across the globe.

The Last Word

Interestingly, both gold and Bitcoin are also restricted in terms of their supply, and while this has coincided with an increase in US dollars to impact on respective values, it highlights the challenges with making either asset a viable reserve currency in the future.

From a practical perspective, Bitcoin is also not as widely exchanged or utilised as the USD, and while it continues to shift towards the consumer mainstream, it’s not a viable reserve currency for most businesses and entities.

Ultimately, whilst the US dollar may eventually lose its weight and status as the world’s dominant reserve currency, it’s unlikely that Bitcoin will take its place anytime soon.