Although the dollar has taken some hits in recent years, it’s still the most popular reserve currency in the world. It is tied to the price of oil as its primary trading currency and many countries buy it to have for a rainy day.
There has been more of a threat than ever on the dollar’s dominance by the Euro and now even cryptocurrency is trying to vie for supremacy to become the leading currency to use as a reserve.
Could it be possible that a cryptocurrency like Bitcoin with no central authority becomes the de facto reserve currency preferred by the world’s nations? In this article, we will explore the possibility to see if it is a viable idea.
It’s a store of value
One of the biggest draws to cryptocurrency that also lends itself to being a reserve currency is that it is used as a store of value. When economies look shaky and markets threaten to crash, people have been turning to cryptocurrency to weather the storm. Making a profit is not essential as they are trying to just not lose their assets, but they are also attracted to the possibility of making money.
Bitcoin has a tendency to be slightly volatile so it may not exactly make it ideal for a reserve currency anytime soon, however. There is another cryptocurrency called a stablecoin Tether that is tied to the value of the US dollar that may be a more attractive way to store value. In fact, banks are buying Tether to do just that right now.
Now that Bitcoin has surpassed the $20,000 mark it may end up being less volatile and could make an impact when it comes to being used as a reserve.
Unit of account potential
Once again, bitcoin’s volatility has people doubting that it can replace the USD as it may not satisfy as a unit of account. There is some sense of it being a unit of account since it does actually quantify the value of other things. An example is how you have to use bitcoin and not fiat currency to buy altcoins if you want to use them for investments or currency.
But, since it is seen as volatile, the value it quantifies would also change. However, the main reason that bitcoin was volatile in the past was because it was not adopted by the masses as a means to purchase goods and services and was firmly in the realm of enthusiasts. These enthusiasts were either buying it because they believed in the idea of bitcoin or were simply speculating.
Now that it is being adopted as an actual currency, it could be less volatile and be used as a unit of account like the US dollar is.
Medium of exchange
The most obvious area that bitcoin could overtake the US dollar is that the dollar is prone to inflation as the Federal Reserve prints more money all the time. Bitcoin is finite and doesn’t succumb to inflation.
It is used to purchase goods and services and has no barrier from country to country preventing it from being used globally much like the dollar.
