The US Dollar has been the global reserve currency for decades, but recent events show that Bitcoin may end up dethroning it someday. This article goes into depth on the BTC vs USD debate.
In the world of finance, one of the most important facets is the ‘reserve currency’. It is significant because it is acceptable for trade all across the world.
To elaborate, it is a foreign currency that central banks or other monetary authorities hold in excessive quantities. By holding significant amounts of it, it becomes part of their foreign exchange reserves. The reserve currency is applicable in international transactions and international investments, as well as all aspects of the global economy.
For the longest time, the U.S. dollar has held the title of ‘global reserve currency’. The first printing of the U.S. dollar took place in 1914 following the creation of the Federal Reserve Bank. It was not until less than six decades later that the dollar would officially become the world’s reserve currency. It has since maintained that status and no other currency has been able to rival its financial magnitude.
However, there may finally be a worthy rival in the form of digital currency.
While the highly anticipated cryptocurrency of China’s central bank is aiming to dethrone the U.S. dollar, it appears that Bitcoin could potentially beat them to it. According to Google Trends, Bitcoin Mining is the topic with the most searches.
This marks the first time since October of 2017 that Bitcoin has managed to rise above stocks. At least, in terms of Google searches it has. This suggests that interest is building towards not just Bitcoin, but also other decentralized currencies.
The dollar’s rise to fame
In 1914, when World War I broke out, many countries were beginning to abandon the gold standard. This is a monetary system in which a country’s currency has a value with a direct link to gold. The countries were doing this so that they could pay their military expenses with paper money, which was devaluing their currencies. Three years into the war, Britain was upholding the gold standard to preserve its rank as the world’s leading currency. The country was soon finding itself in a position where, for the first time, they would have to borrow money.
The United States eventually became the lender of choice for a significant number of countries. These countries were willing to purchase dollar-designated U.S. bonds. In 1919, Britain has no choice but to completely abandon the gold standard. This, in turn, would annihilate the bank accounts belonging to international merchants who trade in pounds. By this point, the dollar became the replacement of the pound as being the world’s leading reserve.
Maintaining the status
An arrangement by the name of the Bretton Woods Agreement would go on to make a specific establishment. That being the central banks are responsible for maintaining fixed exchange rates between their currencies and the dollar.
An outcome of the Bretton Woods Agreement was that the U.S dollar would receive the official title of the world’s reserve currency. This could later garner significant support from the largest gold reserves in the world. In the place of gold reserves, other countries would acquire supplies of U.S. dollars. They were suddenly in need of a place where they can store their dollars. Because of this, countries began to buy U.S. Treasury securities. These were what they considered to be a safe and reliable method of money storage.
There was soon an overwhelming demand for Treasury securities. Moreover, there was also deficit spending in order to finance both the Vietnam War and the Great Society domestic programs. This would cause the United States to completely flood the market with paper money. As concerns over the dollar’s stability would proceed to grow, the countries began to convert dollar reserves into gold. The constant demand for gold led to President Richard Nixon intervening. His solution was to delink the dollar from gold, thus resulting in the floating exchange rates that exist in the present day.
Through periods of stagflation (high inflation and high unemployment), the U.S. dollar continues to be the world’s reserve currency.
How is it in the present day?
In a report by the International Monetary Fund, the U.S. dollar is evidently the most popular currency. At the time of the last quarter of 2024, it makes up a little over 60% of all central bank foreign exchange reserves. This statistic effectively makes it the de-facto global currency. This is in spite of the fact that it does not technically have an official title.
The reserve currency that is arguably the closest to the U.S. dollar’s level is the Euro. It makes up a total of 20% of central bank foreign currency reserves. The probability of the Euro becoming a world currency would be hindered thanks to the ‘Eurozone crisis’. It exposed the complications of a monetary union whose leading guide is a group of separate political entities.
BTC vs USD: A new challenger
Cryptocurrency is an innovation that, let’s face it, is still in its infancy. When you discuss BTC vs USD, you must admit that compared to traditional currency, crypto’s existence is only a decade old. It is making great strides, but it is still developing. This young age – not to mention the uncertainty of the technology – provokes a feeling of distrust primarily in those unfamiliar.
The Institute of Nuclear Physics of the Polish Academy of Sciences in Cracow conducted a statistical analysis of the Bitcoin market. The results of this analysis would contradict the conceptions some have about cryptocurrency. To elaborate, the results did not show any significant differences between the two. Nothing sets apart its basic statistical parameters from their equivalents for financial markets. All indications point out that Bitcoin is a far more superior currency than many perceive it to be.
Even with these results on the table, many investors still treat Bitcoin with a considerable amount of apprehension.
To a certain degree, the credibility of traditional currencies appears to be a psychological product. Moreover, it is a product resulting from the fundamental nature of their growth. There is an interesting aspect of this that pertains to our subconscious views. We hold the belief that because there were once specific material commodities behind money, this is commonplace today.
However, from the more physical viewpoint, the BTC vs USD debate shows that traditional currencies have been akin to cryptocurrencies from their conception. Overall, they are bundles of bits in the memory of bank computers. The real value belonging to a currency is now determinable not by what is behind it, but instead what is happening to it. In other words, the market.
Taking the crown
For anyone who has been paying close attention to the cryptocurrency markets, you would know how eventful 2024 has been. That is to say, the year was defined by unmistakably bullish market sentiment. Be that as it may, observers are now exceptionally hopeful for 2025. Here's what Forbes writer Bernard Marr has to say in his article titled Bitcoin’s Trillion-Dollar Comeback: The Market Shift You Can't Ignore:
"Today, one bitcoin is worth nearly $100,000—an increase of close to 5 billion percent. In comparison, gold rose by just over 100% in the same period, while the value of the U.S. dollar dropped by about 45% due to inflation."
Max Keiser, a popular American broadcaster, kicked off the year back in 2019 by making a noteworthy prediction. He believes that Bitcoin will ultimately take the U.S. dollar’s place as the world’s reserve currency. Furthermore, he makes the argument that altcoins will only continue to increase in prominence as traditional currencies simultaneously decrease.
Keiser is of the belief that 2019 will in all likelihood be when the U.S. dollar faces its “downfall.” He points out that one of the primary drivers behind this notion is the creation of certain financial alternatives. Specifically, those that could replace trading in USD. For instance, he suggests that cryptocurrencies will eventually bring with them a replacement system to SWIFT. For those who are unaware, this is the dominant interbank communications protocol.
Keiser would further comment on this:
“A replacement to [SWIFT] begins the end of the US dollar hegemony. Bitcoin also emerged in 2009, and that is starting to take over and get bigger despite the price crash.”
He acknowledges the significant price decreases that Bitcoin was a witness to in 2018. Regardless, Keiser remains steadfast on any future prospects pertaining to the cryptocurrency.
Price changes and past decreases
Keiser continues discussing the matter by bringing up Bitcoin’s past. To be specific, with the crashes it had the misfortune of experiencing.
“But in terms of where Bitcoin is going, you and I have been involved with this space since 2011, we’ve seen it crash 94% in 2011, and it crashed something like 88% to 91% in 2013, 2014, 2015.”
The admittance of past crashes cements a sense of acceptance in the cryptocurrency’s imperfections. However, that doesn’t mean no good ever came from those failures.
“...what I do know from experience [is that] in the past, during these previous crashes, a lot of building took place during that time, robust companies were built. They were no longer distracted, engineers are not distracted by price increases of 10%, 20% or 30% a week.”
Keiser is not done providing different points and arguments. He states that there are two predominant factors that are driving people towards digital currencies. Those factors are the economic decline – which many believe will commence sometime in the near future.
On an interesting note, Keiser suggests that cryptocurrencies are now gradually becoming attractive in the eyes of many. This is especially true in regards to them essentially being “long-term value storage” alternatives to stocks. Continuing this notion, Keiser also points out that Bitcoin will become a much more appealing alternative to central bank-issued currencies.
“The emission schedule of coins coming on every ten minutes makes Bitcoin the central bank of the world with the most rock-solid monetary policy there is.”
Keiser says that this stable supply of tokens is more secure and less vulnerable to manipulation. This becomes evident when you compare them to the monetary policies of central banks.
Conclusion
Professor Stanislaw Drozdz from Cracow University of Technology concludes a report on the subject with the following statement:
“The most important statistical parameters of the Bitcoin market indicate very clearly that for many months now it has met all the important criteria of financial maturity. It seems that in the case of other cryptocurrencies it will be possible to expect a similar transformation. If this happens, the world’s largest market, the Forex market, can look forward to very real competition.”
If one were to take these statements in a much broader context, then the results are an interesting observation. The maturity of the real foreign exchange market is possible with the aid of a central bank or a government. Bitcoin, in stark contrast, goes through maturity with help from no other source other than its own characteristics. What’s more, these are characteristics that are integrally incorporated in its market’s foundations.
