The US dollar has since cemented its place as a benchmark currency due to its widespread acceptance and usage. This was made even clearer at the peak of the pandemic as the dollar ruled the international trade market.
Although the dominance of the US dollar in the international scene doesn’t come as a surprise, Bitcoin more than proved itself to be a capable store-of-value through the heat of the Covid-19 pandemic. Can Bitcoin which was backlashed several years ago for being too volatile flip ‘global reserve currency’ against the US dollar?
Possible Decline of the US Dollar?
Over the last 100 years, the US Dollar has enjoyed the title of the de facto global currency. In the fourth quarter of 2019, the US Dollar represented 60 percent of all known central bank foreign exchange reserves.
After the pandemic hit, US officials were sure that they could print the dollar in limitless quantities without losing its status as the reserve currency. However, they were not prepared for the devaluation that hit the US Dollar.
In a recent article published by CNBC, the US Dollar has been significantly devalued in 2020, and now sits around a 30-month low. The reason for the devaluation was linked to the successful coronavirus vaccine trials and the potential risk of inviting investors.
The current low created by the US Dollar is not the worst thing to hit the news. In a research note published by Carsten Brzeski, the chief economist at ING on the 3rd of December. The future looks grim for the currency. He said:
We forecast another 5-10% dollar decline through 2021 as the Fed allows the U.S. economy to run hot.
Bitcoin’s Growing Stability
In the early years when Bitcoin was finding its place in the global trade market, the major backlash it received was that the number one cryptocurrency was too volatile to be considered an actual store of value. However, 2020 has a different story to tell.
Amid the pandemic, Bitcoin kept a steady price, appreciating as the months passed. Bitcoin opened the month of June trading at $9,463 and closed the month trading around $9,200. It opened July trading at $9,200, and the month at $11,759. The stability and steady appreciation in the price of Bitcoin.
Institutional Investors Hold the Key
Mr. Sharma explained that multinationals are beginning to readjust their perception of Bitcoin with many investors already securing massive stakes in the cryptocurrency. According to him, the fiat debasing activities of the US Federal Reserve and other central banks around the world fueled the move.
While the future of Bitcoin looks undoubtedly good, Bitcoin cannot displace the US dollar as the global currency in one night. If Bitcoin is to grow to become the global value reserve, then the countries and institutional investors will need to use the currency as the base of transaction: a process that requires time.