Could BTC replace the USD? | Empirex Capital

Could BTC replace the USD?

Empirex Capital has made an interesting article about the future of currencies and especially BTC / USD. What role could potential central bank digital currencies and decentralized currencies like Bitcoin (BTC) play in shaping the new international monetary system?

The global monetary system has been centered around the United States dollar since at least the end of World War II when the 1944 Bretton Woods Agreement formalized the greenback’s ascent to unchallenged dominance. Control over the world’s reserve currency came hand in hand with a boost to the nation’s already enormous geopolitical influence, as well as the ability to run huge deficits at low cost.

America’s exorbitant privilege

One of the most common terms to denote the U.S.’s outsize influence on international trade is “monetary hegemony,” which first appeared in Super Imperialism, a 1972 book by the economist Michael Hudson. Almost half a century after its publication, many of the ideas articulated in it still hold true.

As of this year, close to 60% of all foreign exchange reserves are still allocated in the dollar. Furthermore, around 40% of world trade is invoiced and settled in dollars, in addition to its 88% share of worldwide forex trades.

Shifting tides?

As Obama-era Treasury Secretary Jack Lew once warned, the centrality of the dollar to the global financial system hinges on other nations’ willingness to play by its current rules. In order to maintain the monetary status quo, Lew argued, the U.S. must not overuse economic sanctions in order to maintain the impression that these measures are only deployed against foreign governments for appropriate reasons and with sufficient justification.

Centralized digital alternatives

One of the major reasons why the dollar’s hegemony persists is inertia inherent to the gigantic system of international trade. Since all the parties involved in it have been relying on the dollar for decades, one cannot simply decide to opt for an alternative, especially if it does not provide significant efficiency gains compared with the old ways. However, the impending rise of CBDCs could pose a feasible threat to the greenback’s status precisely because they could offer a faster and more convenient medium of exchange.

Some observers note that China might have the best shot at challenging the dollar’s dominant position if it successfully leverages both its expanding economic influence and the usability of its prospective digital currency infrastructure. Omri Ross, the chief blockchain scientist at multi asset trading platform, he said:

“While the Chinese economy still trails behind the Western world in most per person measures in the short term, an aggressive expansionary approach to innovation in physical and digital infrastructure coupled with substantial investments in emerging markets has positioned the impending ‘digital yuan’ as a natural contender to the dollar.”

Ross added that mounting a successful monetary challenge to the U.S. would enable the Chinese government to exercise unrestrained influence on multilateral trade agreements, evade sanctions and even influence the balance of arms. Two Prime’s Fleury thinks that with the rise of China’s digital currency, two major power centers could emerge in the global monetary system, with some other national currencies close behind: “At a minimum, we will see a bipolar world banking system, with USD and Chinese Yuan denominations. The EUR/JPY may also be particularly important.

Created on 29th Jul 2021

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