Can Bitcoin replace the US Dollar as a global currency?
by Sakib Mahmud
The currency which is considered stable, kept as reserves by central banks all around the world, and used during trades between countries is considered as the global currency, for example, US dollar, Euro, and Yen. Among all these currencies the US dollar is the most popular constituting 60% of the foreign exchange reserves by the central banks, and 90% of all the forex trading. The popularity of US$ mainly comes from the strength of the US’s economy, and its ability to pay all its obligations.
Due to the stable medium of exchange; between the prominent international companies many commodities like crude oil, natural gas, gold, silver, copper Aluminum, platinum, wheat, corns, and soybeans are priced in dollars. Similarly, due to the widespread use of the dollar in the international arena all the countries are bound to hold the dollar for borrowing money, and for the trading of goods and services with other countries.
Though there some controversies like the US is using this benefit to borrow money at a lower cost and putting strong sanctions on countries for fulfilling any sort of international political, or economic agenda. Overall due to the aggressive use of sanctions, widespread amount of debt, and overprinting of money for tackling recession, the dollar seems to lose its hegemony. Thus many countries are becoming aware of using dollar free system for trading. Very recently, China and Russia have put forward the idea of a global currency that will not be backed by any single nation; thus will not have concern for currency getting worthless due to any economic turmoil or misuse of power by the issuer country.
In this regard for looking forward to an alternative to US$, especially among the teach-evangelist the crypto-currency ‘bitcoin’ is heard the most. Bitcoin is such a digital currency that runs based on blockchain technology, which can be mined up to a certain number, and is transferred among the people through a decentralized system. The current market capitalization of which is $647.2 billion. As it is a decentralized cashless system it can be used by countries for international trades for bypassing sanctions easily.
The Bitcoin can work like gold as it has a fixed supply, no central banks would have any control over it, so there is no chance of changing the value by over-producing it which might have resulted in inflation or hyperinflation. Additionally, as it is decentralized no specifically one country will take any separate advantages.
Unlike gold, it can be sub-divided to be used for buying goods or services; thus can work as a medium of exchange much better than gold. Moreover, as it can be used for a transaction without any intermediaries, it is considered a more secure, and cheaper way of transaction. Recently bitcoin is being accepted by some prominent companies like Tesla, Mastercard, Square, and PayPal; making it more approachable by other investors.
But the problem comes with over volatility, and fixed supply of bitcoin; usually the daily price swing of bitcoin is 4 times more than gold. In comparison to it, the dollar is comparatively more stable though it has got inflationary concerns. But the bitcoin has proved that over the long term it can store its value.
Additionally, the total number of bitcoin is fixed that is 21 million out of which about 18.5 million has been mined to date. Like gold, it can be used to back digital cash to be issued. Moreover, according to some economists, bitcoin will be an inappropriate option for using it as global currency because the demand for bitcoin would get sky-rocketed, and might outstrip the total supply.
Though it seems like the dollar is losing acceptance, it will take a long time for any other currency like bitcoin to work as a major global currency; side by side with other popular currencies. But this transfer can be accelerated if the US continues imposing unnecessary sanctions and lose control over their economy due to inappropriate economic policies.
Sakib Mahmud is currently completing BSS in Economics at Shahjalal University of Science & Technology, Sylhet, Bangladesh. He is also working as the Team Lead of the Research & Analytics, Econ Insider. He can be reached at mahmudsakib99@gmail.com
This article has been initially published by The Dhaka Side