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Bitcoin will become the dominant worldwide currency, here is why!

Why Bitcoin will dominate the U.S. dollar, the Euro, the Yuan, and should become the world’s reserve currency.

World reserve currencies have lasted about a hundred years on average each. As the U.S. dollar is approaching this mark, the question for its successor (if there is one) rises. There can be compelling arguments made for the Euro, the Yuan, and even the U.S. dollar, but in the end, the idea of Bitcoin tops all available traditional options. Although unconventional, Bitcoin makes a pretty captivating case on why it should be the preferred world reserve currency. Here is why!

Why are we talking about this anyway?

On average every world reserve currency has lasted around 100 years each. The U.S. dollar is about to pass that mark. Raising the question, if there will be a new world reserve currency emerging soon?

100 year average tenures for every world currency
www.start2bitcoin.org

What are the obvious contenders?

As obvious contenders, one can simply take the top 5 most used worldwide currencies based on their share as a global payments currency measured by the official SWIFT tracker.

SWIFT tracker says EUR, USD, GBP, JPY and CNY are the 5 most used currencies
https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre

How do the obvious contenders compare against each other?

Every traditional currency is different and they all have their reasons for being the world's reserve currency, but they also have reasons against them.

U.S. dollar

Tremendous increase in dollar supply in 2020
https://twitter.com/katusaresearch/status/1329513261968986112

The inflationary policy

Inflation in recent years has made the U.S. dollar drastically decrease in value. One might argue for a steady and planned inflation (2–3%), but this unseen shock in money supply is more similar to the monetary politics during World War I or II.

Overvaluation of the U.S. economy

The annual GDP growth for the U.S. has looked quite steady since the financial crisis, but when inflation is deducted the numbers do not look as promising anymore. The infamous Warren Buffet indicator for the overvaluation of U.S. assets has also approached record highs signaling a near-term crash.

Political decline

The political decline of the U.S. has surfaced with the recent election issues and the deep division of the two political parties.

Euro

ECB has introduced negative interest rates since 2015
https://www.stlouisfed.org/publications/regional-economist/fourth-quarter-2017/central-banks-negative-interest-rates

Devaluation of the Euro

The negative interest rates introduced under Mario Draghi are decreasing the future value of the Euro.

Quantitative easing measures from the ECB to tackle the Covid-19 pandemic have led to an increased money supply, adding to the devaluation of the Euro.

Multi-country decision making

With over 25 member states, shared voting rights and veto decisions, achieving a competitive consensus proves to be more than difficult in the European Union.

Brexit

The recently finalized deal which seals the exit of Britain from the EU showed that the European Union is not as strong as it seems.

Greece debt crisis

Being a currency managed by multiple countries might have advantages but also comes with certain disadvantages, such as gaping differences between member states. For example, during the Greece debt crisis, the European Union as a whole suffered as it had to save the struggling Greece economy.

Inadequate supply

The monetary supply of the Euro and European bonds would not be sufficient if the Euro was used as the world's reserve currency. Increasing the Euro supply to meet global demand in the same way the U.S. dollar was spread across the world, is much harder to accomplish.

Yuan

The digital Yuan shows that China is trying to increase the international use of its currency. Making it interesting to look at whether this stands a chance or not.

Little international trust in China

Worldwide currencies need to be freely convertible, have a transparent economy behind them, and need to be trustworthy. China’s Yuan is the complete opposite of that.

Covid-19 crisis and trade wars

Disapproval of how China has handled the Covid-19 crisis and other political decisions have led to a decline in the trust of the Chinese government and resulted in actions such as the trade war between the U.S. and China.

Declining global use of the Yuan

The international use of the Chinese Yuan has declined in recent years according to the global SWIFT tracker. Examples such as the failure of the integration of the Yuan in the oils futures market showcase the decline.

Large steady issuance of Yuan

Finally, the PBOC (Peoples Bank of China) has over the last decades kept a constant yearly growth rate in money supply, steadily increasing the total debt rate. Coupled with a declining economic growth rate, this could indicate an overvaluation.

British Pound

This is only a formality since the pound is on the list of the top 5 global currencies. Since World War I and the heavy inflation, the British pound has been on a major decline. The U.S. dollar was on the rise and after World War II completely took over with the Bretton Woods agreement, stating that from this time on the dollar is the world’s reserve currency.

Japanese Yen

Japan is the perfect example of a horrible practical monetary policy that maybe works in theory but not in real life. They are the most in-debt country in the world and their financial system is not doing well. They do not make a good case for a stable and wanted world reserve currency at all.

Conclusion on which currency will become the world's reserve currency?

There are plenty of different reasons against all of the traditional currencies. Maybe consider a currency, that is not on the list, a decentralized, perfectly transparent, and trustworthy digital currency?

Bitcoin

Bitcoin is decentralized, meaning it is a truly international world reserve currency

Bitcoin might very well be the first “hard” currency that we know. Its supply is completely fixed at 21 million coins. The price of one coin should theoretically increase over time.

It is divisible, meaning that there won’t be a demand shortage of money supply for global payments.

It is transparent as changes to the system are only accepted when the majority of the holders agree. True direct democracy.

It is not owned by anyone, in fact, there is nobody with a personal interest acting behind it. Political and governmental pressure is not able to alter the structure of the system.

Historically speaking, the world’s reserve currencies have been backed by a strong and uprising economy. Bitcoin doesn’t need that. Bitcoin is programmed so that people in this world can put their trust in hard-coded rules, not in the promise that a certain currency will succeed based on their economic strength.

This aspect leads us right back to the question of trust. The only reason speaking against Bitcoin becoming the world’s reserve currency right now is the little amount of time we have had as proof that it works. With time Bitcoin will become more relevant and more people will use it, gathering trust and showcasing whether it really is resilient and deserving of becoming the dominant worldwide currency.

Remarks

If you enjoyed his article, consider sharing it with your colleagues. More information about the DECUS Network can be found on the Internet and LinkedIn.

Authors

Simon Peters is the Managing Director of DECUS Network. We at DECUS open the doors for asset managers to new uncorrelated & uncensored asset class. Diversify your portfolio and Make Your Legacy Unshakeable!

Leander Schmidt is the Content Marketing Manager at DECUS Network. His areas of interest include Ethereum smart contracts, distributed ledger technologies (DLTs) and decentralized finance (DeFi).

DECUS Network GmbH is a venture of BlockSize Capital.

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Leander Schmidt

Leander Schmidt

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Marketing Manager at DECUS network GmbH. Writing about blockchain, digital assets and all finance related topics