Bitcoin as world reserve currency – just a matter of time?
Beginning bull market instead of bear market rally
DJE Kapital AG – To mitigate the consequences of Corona, central banks are pumping enormous amounts of money into the markets. This should allow the economy to gradually recover. In addition, many investors are only marginally invested in shares – reasons for Dr. Ulrich Kaffarnik to assume that a longer lasting upward trend will begin.
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The US dollar explodes.
In Bitcoin circles, it is increasingly being said that BTC will one day replace the US dollar. But does digital gold really have what it takes to become a world reserve currency?
The world reserve currency plays a unique role in the global financial system. It is the currency that virtually every central bank and commercial bank holds in reserve. It is also known as a „safe haven“ – simply because it is the most liquid and stable currency of all. But: fiat money is not forever. The half-life of fiat currencies is shorter than some people think. To be more precise, it takes an average of only a paltry 27 years before one national currency abdicates and is replaced by another. With reserve currencies such as the US dollar (USD), things look only slightly better.
Crypto-arbitrage: Low risk – High return
Because much more than 110 years for the dominant form of money has not yet been in it. The US dollar is also not immune to devaluation.
Go on, there is nothing to see here
And devaluation is the keyword. For one thing is certain: as long as states have a monopoly on money creation, there will be inflation. This is not surprising; after all, the monopoly on money creation is one of the foundations of statehood. With good reason. Devaluation makes debt-based public finance viable. For if the value of the national currency declines, the creditor’s real debt is also reduced-and the largest creditor in an economy is still the state itself.
The Maastricht Treaty therefore expressly provides for the independence of the European Central Bank (ECB). This is intended to prevent incentives according to which states prefer to start the banknote press instead of applying fiscal discipline. This is unpopular and usually entails redistribution (falling social spending, rising taxes, etc.).
But with the independence of the ECB, it is one such thing. At the latest since Mario Drachhi’s „whatever it takes“, even the last advocate of state money should be aware that monetary policy, financial stability and state financing go hand in hand. What was meant was the promise to protect the euro through unconditional asset purchase programs. In plain language, it was clear to the European tax authorities that they had found a buyer for bonds (via detours). Quantitative easing took its course.
First the small, then the big
But expansive monetary policy does not necessarily lead to an increase in the price level. If the liquidity provided seeps into the financial sector, inflation is not to be expected initially. At least for the major currencies. This is because financial uncertainty always leads to an increase in foreign demand for reserve money, which can even lead to an additional shortage and thus deflation of the reserve currency. This scenario is more conceivable in the short term for the EUR, USD and British Pound (GBP) than a galloping devaluation.
However, a look at Turkey shows that secondary fiat currencies cannot keep pace. The Turkish Lira (TRY) has been on a downward trend since the beginning of the year and has lost almost 23 percent in value in 2020 alone. Woe betide the Turkish population when it learns about Bitcoin.
Course of exchange USDTRY since January 2020. source: Bloomberg.
USDTRY share price development since January 2020.
Bitcoin as a real alternative?
As a citizen, you were previously at the mercy of central bankers. Capital controls generally make it more difficult to seek salvation in stable fiat money or gold when inflation is running high. But these can hardly be used effectively against BTC. Bitcoin is designed from the ground up so that confiscation is hardly possible. That is why it is so important to protect the private K