What is a world reserve currency and why is it important? Simply put, a world reserve currency is a currency that many countries agree to use when doing business with each other. There are several world reserve currencies. Global key currencies include US Dollar, Euro, Japanese Yen, British Pound, Swiss Franc and Chinese Yuan. The US dollar currently holds the position of the world’s most popular reserve currency. However, history has shown that the life expectancy of fiat currencies is only around 100 years.
Throughout history, global reserve currencies have collapsed for a variety of reasons. For example, the collapse of the British pound as the world reserve currency was caused by a combination of factors such as the demise of the gold standard, the decline of Britain’s economic power, and the country’s rising debt after World War II. .
Similarly, the US dollar, which has been the world’s dominant reserve currency since the end of World War II, may face challenges that could lead to its demise. Rising debt, persistent trade deficits and declining confidence in the US economy may have contributed to the dollar’s loss as a major global currency, they argue.
Why is it good to be the dominant world reserve currency?
Because many central banks and financial institutions around the world want to hold U.S. dollars and dollar-backed securities like U.S. Treasury bonds, there is strong demand for U.S. dollars. That demand, in turn, allows the United States to borrow more cheaply (at lower interest rates) than it would otherwise.
Bitcoin enters the room and Hillary Clinton get’s scared.
The US Senator Hillary Clinton, and other top government officials argue that if more and more countries and individuals begin to adopt cryptocurrencies as an alternative to fiat money, the demand for the dollar could decrease, potentially leading to its collapse.
But a collapse of a world reserve currency is a complex process that can take years or even decades to unfold. Therefore, predicting the demise of the U.S. dollar or any other reserve currency is difficult, as it depends on a wide range of economic, political, and social factors.
It is also difficult to predict which currency will replace the US dollar as the dominant world’s reserve currency. Morgan Stanleys global strategist argue that Bitcoin is making progress towards replacing the US dollar as the world’s reserve currency. Others believe that China’s yuan could become an alternative reserve currency. It is difficult the predict which currency will be widely accepted globally as the medium of exchange and store of value. But Bitcoin has potential.
Would Bitcoin be a good world reserve currency?
Presently, Bitcoin would not be a good world reserve currency since its not globally accepted as means of payment and its value is highly volatile. Bitcoin could also contain unexploited flaws on the blockchain which raise security concerns. Furthermore, Bitcoin does not have any physical form. Additional arguments against Bitcoin becoming a world reserve currency are the question if powerful governments are keen to formally hand over the control of a currency to a peer-to-peer network. In fact, the decentralized strength of Bitcoin makes may be seen as a weakness in becoming a world reserve currency as nations would want to be able to control the currency.
But there are also many reasons why Bitcoin has potential. Bitcoin takes away the power of faulty and corrupt governments as it’s decentralized. This unlike traditional currencies that are controlled by governments and central banks. In short, governments are not able to endlessly print money and therefore inflate the currency. Bitcoin on the other hand has built in deflation.
Second, Bitcoin is a digital currency that can be sent and received anywhere in the world with an internet connection, making it an ideal currency for international trade. Sure, there are even faster cryptocurrencies for this function but never mind.
Third, Bitcoin has a limited supply of 21 million coins, which makes it a scarce asset. Whereas there is 20.354 trillion dollars in circulation and since 2020 the USA has printed 80% of all US dollars in existence. Jesus! That’s how crazy the money printing press has been the last 2 years in the USA. Of course, there is going to be inflation.
Fourth, even though there are some security concerns Bitcoin can also be argued to have a high level of security due to its blockchain technology.
There you have it folks. What do you think? Will Bitcoin become a world reserve currency?