World's current reserve currency, the US dollar, keeps falling each year, putting the current financial system at risk of collapse. Is this a sign that the current system is about to end? A new reserve currency will be needed if this is the case.
The world of finance is being revolutionized by blockchain and bitcoin. Traditional financial issues were controlled and tied to wealthy nations and individuals, but they provide the best solutions.
What is bitcoin?
In the world of cryptocurrencies, Bitcoin is undisputedly the king. The first cryptocurrency, Bitcoin, was created by a pseudonymous programmer named Satoshi Nakamoto in 2008.
A blockchain is a distributed ledger that records and distributes transactions. These transactions are authenticated and secured using cryptography.
As with gold, Bitcoin can be used both as a currency and as an investment. When a bitcoin's value is divided into 8 decimals, this is known as a Satoshi. It has even reached a price of USD 64400 at one time, and the current price is around USD 20780.
Seeing what cryptocurrencies such as bitcoin can accomplish is amazing.
A few of the possibilities include creating pathways to decentralized finance, saving economies from inflation, working against dominant Internet monopolies, and using advanced technology.
Reserve Currencies
Reserve currency refers to any currency that is kept in large quantities and maintained by major financial institutions. Global exchange rates, investments, debt obligations, and trade transactions can be influenced by reserve currencies.
The largest reserve currency as of now is currently the US dollar.
Due to the USD's value, most metals like gold are valued in USD. Over 58.81 percent of all global fiat reserves are held in the USD. With 20.64%, Euro is in second place. Up until 1925, the British dollar was the most important reserve currency.
According to many experts in finance and economics, dominant currencies tend to last roughly 100 years. Furthermore, experts predict that the USD's dominance is ending and will begin to decline.
There are a number of reasons why the status of a dominant reserve currency may be threatened. In order for a dominant reserve currency to remain dominant, a variety of factors must be taken into consideration. Take a look at the USD's past as a reserve currency.
World's most dominant currency. US Dollar
World War I was a major factor in the rise of the USD. Allies were cornered and had to turn to the USA for military supplies at that time. Gold was then used to purchase these items. As a result, the USA became the world's largest gold holder.
The US dollar's power was significantly influenced by it. During World War II, the US economy was the most powerful. Competitors were forced to focus on the conflict. The destruction of these cities' industrial centers would also benefit the US.
It made it easier for countries to rely on the US for funding. The US also offered low-interest loans to many countries. When the war ended, the USA and the USD were the best-performing currencies in the world.
The Dollar replaces gold
In 1971, the US began printing money at an increased rate to support its war efforts in Vietnam. As a result, other countries began to convert their dollar reserves to gold. As a result, Nixon and the acting president were appointed. Gold and the USD were dissociated by Nixon.
Since other countries have accumulated gold, the USD remains the dominant currency. US Treasuries are the main support for the USD, even though it hasn't been as strong as it once was.
Dollar's fall
Dissociating from gold was the first step towards the decline of the US dollar. As a result of the financial crisis of 2008 and the 2020 Covid-19 pandemic, the US dollar's decline was accelerated.
As a result of the financial crisis, the Federal Reserve System and the US government had to provide a $7.77 trillion bailout. In the period of the covid epidemic, this amount grew to $9 trillion.
Whether it's the events of 1971, a pandemic, an increase in inflation, or a glut of money printing, it will surely bring down the value of any currency. For instance, China and Russia are exploring alternatives to traditional currencies. There are even plans to create Central Bank Digital Currencies.
The currency of a nation can be used to reserve funds, but it degrades the power of the nation that owns the currency. An excellent example is the USD. Several countries have expressed concern about the United States' use of the dollar.
USD wire transfers must be settled by a US bank. The US can block these transactions if they choose this option. The US dollar will also fall due to this factor.
Gold failed to regain its original value after the breakup of the USD and just continued to fall. After being the largest creditor in the world, the USA became the one with the largest trade deficit and debt.
The Rise of the Bitcoin
As the US dollar declines, countries are starting to distance themselves from the dollar. Export contracts in Paraguay and Argentina have already been settled using Bitcoin.
Meanwhile, Venezuela and other countries have allowed bitcoin to be traded internationally and domestically. Furthermore, Central and South America are becoming more crypto-friendly. The Malaysian government has taken legal steps to implement bitcoin.
According to a proposal made by China and Russia in 2009, the world should be able to switch from USD as the reserve currency to a currency that has no international connection.
The closest thing we have to a similar currency is Bitcoin. Recently, Russia announced it would accept bitcoin for oil and other commodities.
Since its inception, bitcoin's adoption rate and price have rocketed. In spite of recent price drops due to epidemics, experts believe bitcoin's future is secure and could surpass $100000 USD in the near future.
Can Bitcoin be able to replace Dollars?
There are no owners of Bitcoin, which is a digital currency. As a result, authorities cannot exploit it. A country cannot use the reserve currency to gain power if it is not owned by any country.
Moreover, every fiat currency we've encountered has failed. Even the British Pound, which was the most popular currency, lost 99.5% of its purchasing power.
Bitcoin is resistant to inflation and excessive printing of money due to its supply limit of 21 million bitcoins. Furthermore, bitcoin is more secure and transparent, so it can be transferred faster at a fraction of the cost of fiat.
Due to bitcoin's decentralized nature, no one can prevent, limit, or manage it to get more profits. Unlike gold or cash, Bitcoin can be carried everywhere and is a mobile currency.
Additionally, it is the only currency that is durable, flexible, portable, divisible, uniform, and scarce, which are all characteristics of a viable asset.
While fiat currencies face inflation, bitcoin enjoys deflation. For instance, what we can buy for $100 in 2022 will be significantly less than what we could in 1950 with the same amount. Compared with 2011, what we can buy for 1 Bitcoin in 2022 is astonishingly high.
"Sound money" refers to a currency that is not subject to sudden increases or decreases in value. Bitcoin is currently the most stable currency on the market, despite the fact that digital currencies are not generally recognized.
A country's standard of living and quality of life will improve if inflation is not a problem. Therefore, bitcoin is only a matter of fact.
The World on Bitcoin
If bitcoin were the currency of reserve, the world would look very different. Neither inflation nor currency manipulation would occur in the world.
The enlarging wealth gap and more equitable finance distributions will reduce mistrust between nations and people. The benefits of a solid money system in the economy will surely improve the lives of people, as we've discussed before.
Governments and corporations will be held more accountable for their financial and corporate responsibilities by reducing corporate bailouts and borrowing funds based on promises.
Bitcoin can also bring back the balance of equity markets around the world.
Why shouldn't it be easy?
Despite how nice and exciting all of this sounds, implementing the changes necessary to make this happen isn't easy. Humans need to conquer greed in order to make a better future for humanity as a whole. The only thing greed can do is negatively impact everyone around them, regardless of whether it's for money or power.
The popular saying goes, "don't fix what isn't broken." Many people are afraid to make a big change like this. Even though the current currency system may seem to be working, it is only marginally so, and it is on the verge of collapse. In order to get people off, we must overcome this mindset.
Many people are familiar with bitcoin and understand its basic concepts, but they feel that it is too complicated for them to explain.
Governments holding large reserves of USD are another factor slowing bitcoin's progress. Millions or even billions of dollars could be lost if a new currency emerges and becomes the dominant currency. Their reluctance to change their currency is understandable.
The liquidity of bitcoin and the launch of Central Bank Digital Currencies (CBDCs) is also slowing the pace of change. Bitcoin is much less liquid than the USD. New CBDCs also take advantage of bitcoin's potential. Despite being familiar with bitcoin, most people prefer CBDCs in their country over bitcoin.
There are some positive aspects of bitcoin as a reserve currency, despite these indicators. Bitcoin has been widely adopted worldwide, and nations are competing to be the best blockchain and possess the largest cryptocurrency due to its massive adoption.
Conclusion
The proper implementation of bitcoin will benefit humanity greatly. As the world's reserve currency, it will eliminate issues such as currency centralisation, inflation, and currency and also level the playing field. In addition, it will improve the living standards of the population, resulting in a more efficient economy.
A better currency reserve is a wonderful way to repair our shady society. Bitcoin is the best option because it is among the most flexible, innovative, and powerful currencies that exist.
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