Initially, as the pandemic shook the world, the mighty greenback was at its zenith. Even though there was talk of the American supremacy faltering, the US dollar was the primary medium of exchange for international trade, the “foreign reserve” held by the central bank of most nations, and the standard against which economies around the world value their money.
There are only the currencies of five countries that, before the US, were considered as “reserve currencies”. These are Portugal in the mid-1400s and Spain, followed by Netherlands, Britain, and France. On average, their reign lasted for 94 years. In 2020, the US dollar completed 100 years of being crowned as the coveted “federal reserve”. For this reason, many people have raised a reasonable doubt regarding the future of this “federal reserve”. How much longer can it endure its status? But, if the world moves on from the US dollar, then which currency will substitute it? Who’s the successor of the mighty greenback.
There is competition, to be fair. When the Euro was introduced in 1999, many regarded it to be the competition for the US dollar. However, the currency failed to garner trust from the world economy as most nations were hesitant to back the currency launched by the eurozone’s multi-state government. China, too, introduced the renminbi as a contender but now most were concerned about the unpredictability of its one-party government.
Thus, the US representatives were assured that, during the Coronavirus lockdowns, they could still print the greenback in abundant quantities without threatening its hegemony. They thought they could let the economy run on big deficits with apparently zero repercussions. But, then there are cryptocurrencies, a new type of rival to the US dollar. Cryptocurrencies or digital currencies such as Bitcoin is regarded as a decentralized and democratic substitute to the dollar. It’s unmonitored by any authority and operates on Peer-to-Peer systems.
The pandemic has ensured that Bitcoin is more than just a digital hype. Many central banks around the world are buying the crypto in bulk in fear that the US Federal Reserve is working towards devaluing their currencies. It’s the hottest investment of this year and its price has grown over 4-5 times.
People sceptical of Bitcoin taking over the US dollar believe that it should be gold, and not Bitcoin, ending the dollar’s dominance. A recent study shows that, compared to 27% of millennials, only 3% of baby boomers own Bitcoin.
This is undoubtedly a turning point for the greenback. US debts have exceeded 50% of its economic output last year, which is a signal for a pecuniary crisis. The government has also been borrowing more during the COVID-19 lockdown and the debt has already increased to 67% of the country’s output which is deeply alarming. The greenback’s reign is supposed to end when nations around the world stop backing the US to keep paying its bills.
The printing of currency will continue even as his debts mount and the pandemic is over. And, Bitcoin will unequivocally gain from it. Most Bitcoin today is held as an investment, but it’s starting to change as Bitcoin paves its way to replace the dollar as a medium of exchange. Recently, even Paypal, the digital payment giant, has started to hold Bitcoin as it looks to accept it as a payment method. It’s also being used by businesses in smaller countries, where the dollar is non-existent and the domestic currency is unstable.
This surge in the popularity of Bitcoin should prove to be an eye-opener for governments around the world, especially the US, who’re recklessly printing money. The hegemony status mustn’t be taken for granted. And, authorities stepping in to monitor Bitcoin may just backfire and add more fuel to the populist revolt.