Once the pandemic struck, the US dollar was as dominant as ever. Given the talk of declining American power, the dollar-dominated as the instrument of foreign exchange, the cornerstone on which other countries measure their currencies, and the “reserve currency” that most central banks keep as deposits.
Before the US, only five nations had possessed the unique status as a reserve currency, dating back to the mid-1400s: Portugal, Spain, the Netherlands, France and Britain. In total, those reigns lasted 94 years. The run of the dollar had lasted 100 years at the beginning of 2020. That may have been a cause to doubt how long it might carry on except for one caveat: the absence of a replacement.
As a result, US officials became assured that in reaction to the Covid-19 lockdowns, they could print the dollar in infinite amounts without losing its reserve currency value, enabling the government to keep running massive deficits without evident repercussions. Yet, a new generation of competitors is arising: cryptocurrencies. Functioning on peer-to-peer networks unconstrained by any entity, cryptocurrencies like bitcoin are nominated by their advocates as autonomous, democratic alternatives.
The virus outbreak made certain crypto-pitches sound less like a real digital hype. Nevertheless, terrified that US Federal Reserve-led central banks are devaluing the worth of their currencies, several people have purchased bitcoin in volume. Since March, its value has more than quadrupled, rendering it among the top investments in 2020.
Since its launch in 2009, the developers of Bitcoin have strived to create it as “digital gold,” a secure store of value that provides a safe refuge in turbulent times. Yet naysayers find it challenging to feel worthy to put in a commodity that is so unstable: the very last bitcoin bubble exploded less than three years ago, and its frequent price fluctuations are already four times greater than gold.
Deniers are especially well-distributed by those who have not grown up with modern technologies. They appear to favour gold that has been bought as insurance against the collapse in traditional currencies for thousands of years. In a recent poll, just 3 per cent of the boomer generation reported holding cryptocurrency compared to 27 per cent of millennials. However, even those figures are increasing, and there are reasons to assume that this bitcoin surge has profound impacts.
Bitcoin is now beginning to make strides on its goal to overtake the dollar as a means of trade. Most bitcoins are kept as savings, not used to fund expenses; however, they’re changing. Smaller companies are beginning to use bitcoin in foreign trade, especially in nations where dollars can be challenging to come from, such as Nigeria) and where local currency is unreliable (Argentina). And in recent months, PayPal and its Venmo affiliate have started saving bitcoin to adopt it as payment next year.
Bitcoin’s boom could indeed appear to be an illusion. Still, even if it bubbles up, this year’s cryptocurrency rush could act as an alarm to government money printers worldwide, especially in the US. Don’t believe that the common currencies are the only sources of cash or trade that people can ever value. Innovative people are unable to avoid searching for solutions before they discover or invent one. And jumping in to monitor the digital currency revolution, which some governments are now suggesting, will only intensify this populist disruption.