Is our idea of what constitutes money about to change… again?
Yes, right now, crypto is a wall of red. Yes, cryptocurrencies are still young and wild, and we’re not quite sure what to do with them… at least, that’s how it seems. But, behind the scenes, serious conversations are taking place. And in those conversations, serious questions are being posed about the next iteration of our idea of money. Could Bitcoin become the next world reserve currency?
We live in a global economy, and for that global economy to survive and thrive, we must all agree which currency is the most valuable. At present, that currency is the United States dollar… and it feels like it has been that way for forever, but it hasn’t been that long… only since 1944.
For thousands of years, we’ve been collectively deciding which currencies hold weight and which ones don’t. From the Byzantine Empire, which created the world’s most popular reserve currency, the solidus, which stayed popular for almost 1,000 years (that’s ten times longer than the US dollar)… to the British Pound in more recent years.
Traditionally, money has been tied to gold… but the United States dollar is a currency backed by absolutely nothing… it could be argued that, if we can have paper money backed by nothing, why can’t we have digital money? Maybe it’s a good question… because the fact is, the U.S. dollar is declining, and it has been for some time.
According to the IMF, central banks’ share of U.S. dollar reserves has decreased to 59% (the lowest level in 25 years). The dollar’s purchasing power has been on a decline for decades and has been losing its importance in global markets, pushed along by trade wars, conflicts, and the rise of economies of enormous power, such as China. Now, we are seeing a push from the global community to dethrone the dollar.
Saudi Arabia, the world’s largest oil exporter, is considering accepting the Chinese yuan instead of dollars… it’s a big deal. Oil is the world’s most traded commodity, with an annual trade volume of about $14 trillion. And, with recent financial sanctions being imposed on Russia, some countries are pushing to divest from the dollar, fearing the US may further weaponize the currency… a prospect that they find unacceptable.
Why Not BTC?
That brings us to Bitcoin… no longer something that only hardcore technologists and futurists dabble in, it’s going mainstream. Some are even calling for bitcoin to become the world’s reserve currency.
According to a Nasdaq report from October 2021, Bitcoin has surpassed the Swiss franc to become the world’s thirteenth largest currency… which is impressive, because it has only existed for 14 years. And, it’s the world’s fastest growing payment network, with yearly transaction volumes exceeding $3 trillion… which surpasses American Express.
What’s probably most attractive about Bitcoin, which is being amassed by institutions, governments, pension funds, REITs, banks, and individuals alike, is that it has the limitless potential to scale… and since people make the choice to interact with it… people want it, it’s not being pushed on them. Collectively, humanity is looking to move away from centralized authority… even in money… and toward less control and oversight (although, it could be argued that the blockchain offers the opportunity for tighter control, but that’s a conversation for another time).
Adding to this shift in thinking and behavior, a large chunk of people believe that banks and financial institutions do not act in the best interests of the people. Whether that’s true or not is a moot point… they believe it, and that’s the space they’ll make choices from. Especially as we see infinite money printing, institutional rule-bending, and the devaluation and weaponization of currencies by government. People are clamoring for something different… and some are starting to see Bitcoin as a neutral currency that can help loosen the grip of the dollar.
Has Bitcoin reached a point where it stands a chance at competing with the U.S. dollar, Chinese yuan, Japanese yen, British pound, and the euro for reserve currency status? Believers point out that Bitcoin has the hallmark of currency… that it’s valuable, portable, divisible, indestructible, homogenous, cognizable, and has utility.
Some Are Eager, Others Are Not
Citing distrust in government and how our money is handled, some lawmakers, like Senator Rand Paul, are openly asking these questions… opening our minds to the possibility. Rand’s take is that, as people lose confidence in the government institutions, bitcoin could benefit and rise to become the world’s reserve currency.
Business owners are weighing in as well, like one of my own acquaintances, Shark Tank’s Kevin O’Leary, who is outright predicting that Bitcoin will become the world’s reserve currency. Not a fan just as recently as 2019, Kevin is now singing a new tune… and it sounds a lot like Bitcoin advocacy. He now says that Bitcoin could potentially “save the world” and has allocated 20% of his portfolio to cryptocurrencies and blockchains. He believes that Bitcoin mining will become more sustainable over time through hydroelectricity and nuclear energy, and he’s pledging to spend the next decade in the sector.
But some aren’t buying it… citing possible fatal Bitcoin flaws. First, some say that Bitcoin, and cryptocurrencies in general, are too volatile. That sounds fair. Then, there’s the criticism that cryptocurrencies, unlike something like gold, hold no underlying value… that it’s just numbers on a screen. But… that begs the question, isn’t that what fiat money is? Poof… we can create it at will. And if that’s the case, does it have any real value? We’ll keep exploring these questions in future issues… the possible birth of a new reserve currency is too exciting not to watch!