Bitcoin should replace the dollar

Key emerging nations are gradually moving away from the dollar, slowly but surely. The next international reserve currency will be bitcoin.

Greenback

Since the end of World War II, the dollar has been the world’s primary exchange medium. It is the ultimate international reserve currency.

A reserve currency is a foreign currency held by a central bank as part of its official foreign exchange reserves. The dollar constitutes the majority since it is dominant in international trade.

Central banks typically hold their reserves in the form of government bonds. U.S. Treasury bills in the case of the dollar. America’s debt is by far the largest and most liquid bond market in the world. Its size ensures nations that they will be able to access their money at any time.

The International Monetary Fund recognizes eight major reserve currencies: the U.S., Canadian, and Australian dollars, British pound, Chinese yuan, euro, Japanese yen, and Swiss franc. The U.S. dollar accounts for 59% of global foreign exchange reserves.

China has the largest foreign exchange reserves, amounting to over 3 trillion U.S. dollars. The exact composition of these reserves is confidential. However, we do know that the Middle Kingdom holds approximately 800 billion dollars of U.S. public debt.

We also know that Beijing is gradually reducing its dollar reserves. These have decreased from 59% of the total in 2016 to 25% in 2023. They represent 10% of the total dollar reserves held by central banks worldwide.

China ranks second in holders of U.S. public debt after Japan. India, Russia, Saudi Arabia, Switzerland, and Taiwan also have significant reserves, like all major exporting countries.

Les nations affichant les plus grandes réserves de change (les réserves d'or ne sont pas comptabilisées). pic.twitter.com/LkKuCGsDju

— Nicolas Teterel #FixTheFilters (@NTeterel) February 9, 2024

How did the dollar become the global reserve currency?

The dollar became dominant in the aftermath of World War II. The key event was the Bretton Woods Conference of 1944, where forty-four countries created the IMF and the World Bank.

A fixed exchange rate system was chosen, where each country would peg the value of its currency to the dollar, which was convertible into gold at a rate of 35 dollars an ounce. This was a safeguard to prevent the United States from financing its imports with the printing press.

The threat materialized in the 1960s when European countries began to convert their greenbacks into gold. For two reasons. The first is that by then, Fort Knox’s gold could no longer cover the dollars circulating abroad.

The second is less told. The old continent knew that the U.S. oil peak was imminent. It was predicted as early as 1956 by geophysicist Marion King Hubbert for 1970. The event indeed occurred in 1971.

It was therefore foreseeable that the United States would start importing large quantities of oil which were bound to worsen their trade deficit.

It’s no coincidence that President Richard Nixon suspended the convertibility of the dollar into gold in 1971, the year of the American oil peak. Under normal circumstances, gold should have returned as the ultimate international reserve currency. Obviously, this did not happen.

Another lesser-told story is that Washington forced Saudi Arabia (and the rest of OPEC) to sell its oil exclusively in dollars. A dirty business…

Since oil is the lifeblood of any industrialized nation’s economy, European countries had no choice but to continue using the imperial currency. And there you have it…

Other factors have meant that U.S. debt became the international reserve currency. The size of the American economy and Washington’s geopolitical influence certainly play a role.

“U.S. Treasury bills can be considered the world’s premier reserve asset,” explains Brad W. Setser in a recent paper from the American think tank Council on Foreign Relations (CFR). “It is difficult to compete with the dollar without a market comparable to that of Treasury bonds ($22.5 trillion).”

What are the benefits of the “exorbitant privilege”?

The status of the main A reserve currency was referred to as an “exorbitant privilege” by President Valéry Giscard d’Estaing.

This privilege lies in the fact that the United States is the only nation in the world that can sustain a chronic and abyssal trade deficit without its currency collapsing. Why? Because instead of converting their dollars into their own currency, countries with trade surpluses invest them in U.S. debt.

Le "privilège exorbitant" du dollar en image : pic.twitter.com/Fv8xGLWqhr

— Nicolas Teterel #FixTheFilters (@NTeterel) February 9, 2024

Some might say that nations are free to sell the U.S. debt they hold. But try telling that to the Russians, the Iraqis, the Iranians, or the Afghans. The United States disconnected Russia from the SWIFT network and “froze” $300 billion that the Russian central bank was keeping in reserve.

Who is next on the list? China? Emerging economies have heard the message loud and clear and are now looking to ditch the dollar. “Dedollarization” is definitely underway.

For example, the yuan has become the most traded currency in Russia. All BRICS countries now have a strategy to trade in their own currencies. There are even whispers of a return to the gold standard in the works.

“The dollar is finished as the world’s reserve currency,” stated financial markets veteran Dick Bove to the NY Times this week.

President Putin, interviewed by Carlson Tucker, declared:

“The world understands very well that no matter how many dollars are printed, they are quickly dispersed around the world. [This results in] minimal inflation in the United States. […]

But look at what’s happening around the world. Even the United States’ allies are reducing their dollar reserves. The fact that the United States imposes sanctions on certain countries through restrictions on transactions, freezing of currency reserves, etc., provokes deep concerns and sends a signal to the whole world. Everyone is starting to look for ways to protect themselves. […]

Other countries, including oil producers, are considering and are already agreeing to sell their oil in yuan. Do you realize what is happening?”

Russian President, Vladimir Putin, explains that the “US dollar is the main weapon used by the United States to preserve its power across the world.”

Putin 100% understands #Bitcoin pic.twitter.com/jr3iHUESaI

— The ₿itcoin Therapist (@TheBTCTherapist) February 9, 2024

Bye Bye Dollar, Welcome Bitcoin

More than 20% of oil is traded in currencies other than the U.S. dollar. A figure that is set to grow given that the BRICS control 45% of the world’s oil reserves following the arrival of Iran, Saudi Arabia, and the United Arab Emirates. Considering that Russia – which is chairing the BRICS in 2024 – has reaffirmed its dedollarization goal.

However, alternatives are not plentiful. The euro is the second most used reserve currency, accounting for about 20% of global foreign exchange reserves. Europe has all the assets to compete monetarily with the United States. Unfortunately, our vassalization is such that we refused the Russian offer to pay our gas bills in euros. We even sell Airbuses in dollars…

The yuan? China is making efforts to increasingly use it in bilateral transactions. However, “China neither intends nor is capable of dethroning the dollar,” according to Zongyuan Zoe Liu, a CFR fellow.

Then there’s gold, which China and Russia have been accumulating steadily for years. This trend is very promising for bitcoin, which is better than gold for two main reasons:

-The quantity of bitcoin is capped at 21 million units. On the other hand, the amount of gold mined from the earth continues to increase year after year. This distinction is crucial!

-Gold is very expensive to move. Bitcoin, on the other hand, is both a currency and an international payment system. Two-in-one. It’s possible to send the equivalent of tens of billions of dollars for a few dozen cents in transaction fees anywhere in the world instantly.

Sooner or later, Russia, China, Saudi Arabia, and the like will realize that bitcoin is the stateless, uncensorable, and anti-inflationary currency they have always hoped for. Not the barbarous relic. Hodl!