Bitcoin has proved itself to be a supreme store-of-value in this pandemic-ridden world. But can the world’s first cryptocurrency flip the US Dollar to become the ‘global reserve currency’?
The US Dollar Has Been The Global Reserve Currency For 100 Years Now
Ruchir Sharma, Morgan Stanley Investment Management’s chief global strategist, went candid in his latest opinion piece on Financial Times. He talked about the ‘reserve currency’ history starting right from the 1400s.
And delineated how in the last 100 years, the US Dollar has enjoyed domination as the global medium of exchange. But despite praising the greenback, Sharma didn’t mince words in criticizing US officials. How they leveraged the COVID-19 pandemic to flood the money markets with countless dollar bills.
He mentioned that the US Dollar faced competition from the Euro and the Renminbi. But global market confidence in the latter two was bleak. This meant that the United States federal government could continue to abuse the ‘Daddy Dollar’ status of the greenback unabashedly.
US officials were thus confident that, in response to the Covid-19 lockdowns, they could print the dollar in limitless quantities without undermining its reserve currency status, allowing the country to keep running large deficits without apparent consequences.
But as it so happens, the dollar’s hay days are about to end.
US Dollar Hovering At A 2.5 Year Low; To Fall Further in 2021
As per a recent CNBC article, the US Dollar has subsided significantly in value, owing to talks of successful coronavirus vaccine trials and the rising risk appetite of investors. But going into 2021, trade analysts have projected a much more grim outlook for the greenback.
In a research note published last Thursday, Carsten Brzeski, the chief economist at ING said:
We forecast another 5-10% dollar decline through 2021 as the Fed allows the U.S. economy to run hot.
He further added:
It is probably about now we will start to hear the phrase from a former U.S. Treasury Secretary that the dollar is ‘our currency, but it is your problem.
While progress on the vaccine front, Joe Biden’s election as the 46th U.S. President, talks of another stimulus package from the federal government stoke reflation optimism, it spells doom for the dollar.
How Bitcoin Found Takers Especially In This Pandemic
Mr. Sharma, in his FT opinion piece, blasted the U.S government’s dovish economic policies. He said these policies would ultimately lead to the dollar’s demise, which in turn will especially lead to bitcoin taking up the reserve currency mantle.
Operating on peer-to-peer networks ungoverned by any state, cryptocurrencies such as bitcoin are being pitched by their champions as decentralised, democratic alternatives.
He carefully explained how the towering pandemic has forced people to rethink the premise around bitcoin. How investors (including multi-national corporations) have bought BTC en masse, owing to the fiat debasing activities of not just the US Federal Reserve, but central banks around the world. This inadvertently led to bitcoin finally logging a new all-time high this year, rising almost 400 percent from its March lows.
Although the skeptics trust gold more than bitcoin, the relative investment interest in BTC is gradually rising. 27 percent of millennials are choosing bitcoin over the yellow metal.
Ballooning Central Bank Debts Will Bolster BTC To Global Reserve Currency Status
Sharma explained that this comes at a time when US debts are ballooning. Something which is a direct indication of an upcoming crisis.
Despite this egregious situation, Sharma says that the US and other major governments are not particularly interested in controlling the widening of their respective fiscal deficits. This is where bitcoin will gain brownie points as people will eventually shun traditional currencies for something that actually ‘holds value.’ BTC stands a considerable chance of replacing the dollar as the global medium of exchange. And how?
Today, most bitcoins are held as an investment, not used to pay bills, but that is changing. Smaller businesses are starting to use bitcoin in international trade, particularly in countries where dollars can be hard to come by (such as Nigeria) or the local currency is unstable (Argentina). And in recent weeks PayPal and its Venmo subsidiary have started storing bitcoin with an eye towards accepting it as payment next year.
Mr. Ruchir also didn’t shy away from calling bitcoin’s rally another bubble just like 2017. But he also pointed out that this year’s mad crypto rush should serve as a wake-up call for ‘government money printers everywhere.’ ‘Particularly in the US’. In a warning dressed in sharp rhetoric, Sharma concluded by saying:
Do not assume that your traditional currencies are the only stores of value, or mediums of exchange, that people will ever trust. Tech-savvy people are not likely to stop looking for alternatives, until they find or invent one. And stepping in to regulate the digital currency boom, as some governments are already considering, may only accelerate this populist revolt.