Can Bitcoin Become the World’s Reserve Currency?
Marc Chandler is a chief strategist at Bannockburn Global Forex. He has a book out called “Making Sense of the Dollar” in which he explains how the American dollar came to be and why it’s so important to the global economy. To say the least, Chandler knows a thing or two about what it would take to replace a traditional fiat currency with Bitcoin on a more permanent or long-term basis.
Much is being made about the devaluation of the American dollar as both the American and Canadian governments continue to print out money in the form of stimulus packages for citizens struggling with the fallout resulting from the coronavirus pandemic. Yet, Chandler breaks down several reasons why Bitcoin won’t become the world’s reserve currency anytime soon. Let’s work through some of them.
The American Dollar Has a Rich History of Being a Safety Net
The U.S. Dollar is the default reserve currency for pretty much the whole planet. It’s been that way since 1944. Although governments in the Western world are printing off money at a vastly increasing rate that likely won’t slow down for a while, the bottom line is people still rely on the dollar as a safe haven when times are bad. During the recent stock market plunge in March, the U.S. Dollar Index (which measures the American dollar against a basket of other currencies) actually went up more than 10%, which is a big jump.
Still, many who subscribe to the idea that central banks are simply printing off way too much money think that either physical gold or digital gold will be an adequate replacement in the future.
Why the Dollar Is Selling off and Why It Will Continue
During the fallout resulting from the global economic crisis of 2008, the value of the American dollar plunged nearly 20% in May 2011. That’s right! It took two full years for that to happen. The dollar will likely continue to sell off over the next year or two because the fallout from the pandemic hasn’t really been felt just yet, at least not in full effect.
What needs to happen for Bitcoin to become the new reserve currency? It needs more than just the devaluation of the American dollar. Other countries around the world have to recognize Bitcoin as a logical reserve and a safer store of value. This means day-to-day volatility has to come down considerably. It also means institutional investment needs to ramp up tenfold, and it means cryptocurrencies themselves will have to experience many more times the level of adoption we are living through now.
If history has taught us anything, people will park their money wherever they think it’s safe. If Bitcoin can ever prove that it’s safer than the dollar, people will make the switch.
Thanks for reading. For more blogs on all things Bitcoin, you can read more here. If you’re looking to buy Bitcoin in Canada, find out how here.
Looking to buy and sell Bitcoin? Netcoins is Canada’s first publicly owned crypto trading platform to be fully regulated. Simply create an account with Netcoins, fund it with an e-Transfer (more funding options available) and head to the trade page to buy Bitcoin. Sign up today!
Written by: Jack Choros
Writer, content marketing at Netcoins.