Bitcoin: post-dollar and post-gold?

    24 Jul 2021

    Every once in a while it helps to stop, get away from the hustle and bustle of exchange rates and new tokens, look around and try to understand the role of cryptocurrencies in the world today and what it will be in 10 or 20 years. After all, everyone seems to have already realized that sooner or later blockchain technology money will replace conventional cash. Everyone understands that, but not everyone’s accepted it.

    At the beginning of July, Visa announced that for the first half of 2021, transactions made with cryptocurrency-supporting cards had exceeded $ 1 billion. Visa works with 50 large companies in the crypto industry and cryptocurrency card programs that allow spending and converting digital currency with 70 million traders across the world. Even considering all the cryptocurrency card expenses of Visa, the company declared that “the crypto community appreciates the linking of digital currencies to the global Visa network”.

    Visa emphasized that its support for digital currency does not require traders directly accepting crypto, as the company works closely with such large cryptocurrency exchanges as Crу, FTX, Coinbase, CoinZoom, and others.

    It was only last year that Visa, one of the largest payment companies in the world, stepped into the crypto industry in a major way by establishing a partnership with a company called Circle to integrate USD Coin (USDC) into a number of credit cards. Since then, Visa has committed to cryptocurrency payments and fiat operations, paying special attention to the work with stablecoins.

    Visa is one of the world’s largest players when it comes to fiat money turnover, and the fact that the company pays more and more attention to cryptocurrencies speaks volumes. In particular, it shows that world financial institutions are ready to accept cryptocurrencies as a new form of money, an alternative equal to fiat.

    The International Monetary Fund could be included in the same trend, since 2018 it has been talking about the advantages and disadvantages of a new type of asset. The IMF recognizes that cryptocurrencies might be the next step in the evolution of money. According to the Fund representatives, digital money solves a lot of problems of the existing financial system thanks to decentralization and cheaper and faster transactions, among other features.

    Speaking about the risks of the new type of asset, the IMF – for some reason – mentions the anonymity of transactions for most popular cryptocurrencies. Also, IMF experts point out that if you lose your password, you may lose your funds. Another disadvantage of digital money is the high volatility of the quotes.

    “If we can mitigate the risks, then, who knows, cryptocurrencies might become the next step in the evolution of money”, – was the conclusion of the International Monetary Fund.

    By the way, IMF experts have already suggested using Ripple as an alternative option for processing payments in their new report on financial technologies in African countries. The organization published a document in which it claimed that DLT systems can be effectively used to process international payments.

    There are, however, some even bolder forecasts made by independent economists and political scientists. In particular, they point out that the new “cold war” that is unfolding between the United States and China will lead the world into a post-dollar era. After Xi Jinping’s plans to turn China into the dominant world power by 2025 were revealed, Americans inevitably began their response.

    Republicans and Democrats have agreed on a position the United States should take on China. From now on, the United States will act decisively and offensively, retaliating for all of China’s attempts to become the world leader.

    So far, we’ve seen mostly trade wars between Beijing and Washington. And although China in many ways had to give up its positions, it did not let itself be pushed aside and, in turn, also took retaliatory measures. The escalation of tensions between these two superpowers has an impact on the economies of all the world countries, that are now reduced merely to the role of an observer.

    The world becomes bipolar again, back to what it was in the second half of the twentieth century, and the poles are represented by China in one corner, and by the United States in the other. Between these two world superpowers, the rest of the countries will have to decide which side to take, whether to join one of the two camps or try to keep their own voice.

    The struggle for world domination will move into the financial sector as well (in fact, it is already happening). The US dollar has been the world reserve currency for decades, accounting for over 60% of the world’s currency reserves. However, China is determined to end dollar’s hegemony. One way to do so is through the promotion of its own sovereign digital currency. And it already exists – in contrast to the digital dollar, which is still only an idea.

    China also has its Belt and Road Initiative, through which it can really make the digital yuan an important currency for world trade, as well as an attractive alternative for countries and companies wishing to deal with each other without having to use the US bucks.

    Given all that, what situation do we get in ten years? A world in which you (regardless of whether it’s a private person or a business) are forced to exist within the dollar-yuan paradigm, with all the ensuing consequences, including ideological ones. But the world is no longer as simple as it was half a century ago, and while such a division could weaken the status of the US dollar as a world reserve currency, the Chinese yuan might not claim it to the desired extent.

    And since nature abhors a vacuum, some alternative must appear. There could of be several, but two of the most obvious ones are gold and cryptocurrencies. Gold is stable and reliable, it will certainly retain its value as a money-saving tool – for both central banks and individuals. But gold cannot be used as a tool for day-to-day settlements.

    What remains are cryptocurrencies. Their undeniable advantage is that there is no single center, no central bank dictating its terms, and no geopolitical link. For example, Bitcoin monetary policy is not determined by any country or a specific person, it is written in the source code of the BTC protocol.

    That means that in the future (5 to 10 years from now), more and more countries (people, companies, communities) trapped between the United States and China will want to free themselves by implementing cryptocurrencies as a crucial element of their financial systems. This will, among other things, facilitate global trade. The tipping point will be the emergence of cryptocurrencies in central bank reserves. It doesn’t even matter if it’s Bitcoin, a basket of altcoins, or some kind of stablecoins. The very fact of adding cryptocurrencies to foreign exchange reserves will mean that the planet no longer needs to choose between the “world of the yuan” and the “world of the dollar”.

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