Can bitcoin replace the dollar as a universal world currency?
With all this fuss about bitcoin, it seems that some have forgotten about the strength and importance of the dollar. Let’s make a comparison. The dollar is like Windows: it doesn’t have to be the best, as long as the majority prefers it. If the value of 1 BTC reached 1 million USD, could it become the world’s universal currency? Today, cryptocurrency is not yet as established as other major currencies. Most likely, bitcoin will remain more an investment than a means of payment. Here are six reasons why bitcoin will never become a worldwide universal currency:
High volatility. It is impossible to calculate bitcoin’s value when its rate changes by 20% every week/month.
The problem of small payments: low transaction speed for small payments and large costs per operation (about $8 per purchase for a $3 item).
Reliability. Due to the absence of intermediaries (banks cannot interfere), no one can guarantee the operation of this currency at the legislative level. What is more, bitcoin does not have any support service in case any trouble arises.
Energy intensity. The absence of intermediaries involves a large expenditure of energy for conducting operations.
Legal basis. The current rules for the operation with blockchain technology work perfectly. But this is a decentralized system. The introduction of new rules is extremely problematic.
International legalization. Bitcoin is used throughout the world, but each country sets its own rules. It is possible that bitcoin will never become a true legal instrument in the global financial system.
Current situation and potential threats
The US dollar is a universal benchmark against which the value of all other currencies is measured, and the preferred currency for international transactions. While many other currencies are national, the US dollar is both national and international. After the Second World War, the United States began gradually shifting from the production economy to the consumption economy – especially after the creation of a petrodollar system. Oil trade is the main driving force for demand for dollars, allowing it to penetrate all countries around the world.
Nevertheless, it is obvious that there are too many dollars in the world economy. This is a very important issue. The major economic powers, China and Japan, are questioning the need for dependence on the dollar. In particular, China is now taking steps to change the existing system – in the long run, it hopes to replace the dollar with the yuan. Over the past decade, the country has bought a record amount of gold, and the IMF has included the yuan in the basket of reserve currencies. Now China is negotiating the use of each other’s currencies in bilateral transactions between countries. Partnerships with Russia, Brazil, Australia and even with Japan, a former military adversary, led to the creation of currency swaps and other mechanisms to circumvent the dollar. Obviously, these countries are beginning to diversify their economies and reduce dependence on the US currency.
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