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Why bitcoin could become the world’s reserve currency

This digital currency is gaining increasing acceptance and adoption the world over

bitcoin cryptocurrency on table
Image: Unsplash

A group of delegates from 44 countries met in Breton Woods, New Hampshire, in 1944 to create the post-war financial system that the world has known for years. Apart from making the Bretton Woods system, this delegation established the International Bank for Reconstruction and Development, which eventually became the World Bank and the International Monetary Fund. Also, the conference propagated ideas that made the U.S. dollar rise and become the world reserve currency.

The Bretton Woods system pegged exchange rates for different currencies to the U.S. dollar to prevent competitive devaluing of currencies and occasion a race-to-the-bottom. This system fixed the U.S. dollar to gold at $35/ounce. And this made the dollar almost equivalent to gold.

Towards the end of the 1960s, the U.S. spent the dollar to fund the Vietnam War and space race simultaneously. Consequently, more foreign governments attempted to convert U.S. dollars into physical gold. And this caused a temporary suspension of U.S. dollar to gold conversions in 1971.

Half a century later, Richard Nixon took an action that suspended the conversions until today. And this has led to economic consequences that many people don’t understand even now. Essentially, the U.S. adopted a system that enables the state to print more money in exchange for services and goods. And this has led to a decline of the trade balance since then, leading to what the French regarded as America’s exorbitant privilege.

The Big Shakeup

In 2008, two essential things happened after the financial crisis. First, countries started suggesting a new system’s creation to replace the current reserve currency, the U.S. dollar. For instance, Russia advocated for a united future world currency with a unity in diversity slogan. A UN report even backed the notion of abandoning the U.S. dollar.

Second, Satoshi Nakamoto created or introduced bitcoin. Though Satoshi’s identity remains mysterious, some argue that the name stands for a renegade group of programmers and cryptographers called cypherpunks. They wanted to create an alternative to the government-issued currency. And young people have adopted this creation rapidly because they consider themselves global citizens.

While central banks and Bitcoin are necessarily not businesses, the dynamics present a disruptive innovation. Initially, Bitcoin was a peer-to-peer payment system. Eventually, it moved into the mainstream with people trading it on platforms like bitcoin-optimizer.com. Such platforms allow individuals and enterprises to use fiat money to buy Bitcoin. Institutional investors are also purchasing and holding onto Bitcoin. That’s because they can see its potential.

The New World Order

The current digital world needs a digital currency. And Bitcoin is proving to be the virtual currency that the world needs today. Many people have asked whether Bitcoin can rise against the U.S. dollar, which has served as the reserve currency for years.

Well, Bitcoin is rising against many currencies across the world. It’s also rising against services and goods. All these arguments are fair, considering the increasing Bitcoin value against the U.S. dollar.

What’s more, gold and Bitcoin have several similarities. Initially, people used gold as their reserve currency. During the coronavirus pandemic, most people realized that they could use Bitcoin as their value storage because the crisis didn’t affect its value adversely.

Gold supply depends on the amount humans can dig up from the earth. Similarly, Bitcoin’s supply depends on the amount that miners can generate. Additionally, Bitcoin has a supply limit of 21 million tokens. Bitcoin’s encryption and registry system is an innovation that use blockchain or advanced algorithm to eliminate trust need in transactions.

Final Thoughts

Some nations would like the U.S. dollar’s dominance to end. Some central banks would like to have digital currencies that provide incredible tools for tracking, monitoring, and implementing monetary policies. Bitcoin has prompted these dynamics. What’s more, this digital currency is gaining increasing acceptance and adoption the world over. And this could make it the dominant digital currency with the potential for replacing the U.S. dollar as the reserve currency.

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