Cryptocurrencies have been rumoured to have capabilities to take over the usual traditional currencies in general but this article will use a representation of the U.S dollar and Bitcoin to drive points across. First, we’ll have brush through the concept of monetary hegemony before trying to give a definite answer to the question.
What is Monetary Hegemony?
An economic and political concept where a single state or country (as the case may be) has a decisive influence over the functions of the monetary system internationally is monetary hegemony. Asides decisive influence, a monetary hegemon should have easy access to foreign exchange markets, international credits, direct as much as absolute power to enforce a unit of account in which economic calculations are made in the world economy and the management of balance of payments problems in which the hegemon operates under no balance of payments constraint. Michael Hudson's Super Imperialism brought a focus on the term monetary hegemony. He described the asymmetrical relationship that the US dollar has to the global economy and also that noted some structures of this hegemonic edifice (including the International Monetary Fund and the World Bank) supported it.
What is it about the US dollar? The US dollar has continued to underpin the world economy for a long while. The international monetary system has borne witness to two monetary hegemons: Britain and the United States. The United States currency (USD) serves as a unit of account (e.g. pricing of oil), and equally unit of storage (e.g. treasury bills and bonds) just like most other fiat currency but it happens to be the key currency for the medium of international exchange. Arguments have come forth that there’s a state of hegemonic decline for the USD from as far back as 2011, but this has not proven to be so as the US dollar is still very much monetary hegemon. One can call the American traditional currency the strongest link.
The World-Largest Cryptocurrency: Bitcoin (BTC)
The Bitcoin and other digital assets are rising in number and are becoming more and more widespread. Despite the often market dips and permanent fluctuations, the interest to cryptocurrencies grows steadily, which makes them popular against not only tech geeks but the ordinary users as well, due to the fact that the world is developing at a faster pace. However, the cryptocurrencies are only the top of the cake which is the blockchain technology, the potential of which is yet still undervalued. Distributed ledger technology is already working in numerous fields, helping to increase efficiency, reliability and safety in many ways. Safety is the one key point needs more focus nowadays, as it’s put in threat as the future promises to bring a lot of new issues. In the digital space, bitcoin wins most of the praises and spotlight. This can be attributed to the fact that the digital currency was the forerunner before the creation of other cryptocurrencies. From as far back as 2009, bitcoin was created and has been the pacesetter and model figure for creation of other currencies. Bitcoin is the only cryptocurrency that is over 10 years old and has a track record of being hard to change. Bitcoin has the highest trust in its ability to maintain its supply cap compared to other cryptocurrency and even when compared to the U.S. Dollar fiat currency.
By now we can easily agree to a fact that if any two naturally distinct currencies would go head to head, it would be BTC and USD. Reason being Bitcoin is just as strong a contender amongst altcoins as USD is for other countries’ traditional currencies. Only the British Euro comes close to contest the title as the physical money hegemon but the U.S. Dollar Hegemony is still very much in play. That said, if any cryptocurrency is going to be able to beat down it will be bitcoin. Currently, Bitcoin is way ahead of any other cryptocurrency in most aspects like a market price, market cap amongst others. The hard cap supply makes BTC a deflationary asset and the scarcest resource in the world. After 2020 halving, Bitcoin inflation will be under 2% and getting lower every day as you get closer to the hard cap of 21 million. Throughout the history of money, the hardest money always wins and becomes the best store of value.
The United States obviously doesn't want to lose its current position of currency leadership. It has become clear; however, that many countries aren't particularly happy with the arrangement. As dollar transactions can be controlled by the US, it can impose financial sanctions on any country. Clearly, countries bearing this risk would see the benefits of using a decentralised currency so that no authority can use it to obstruct any aspects of international trade. This is where we can see a role for cryptocurrency. There are nevertheless many problems associated with it.
The inconvenient fact is that traditional money issued by the state governments are used to hold the monopoly of money in the world, and these bounds created to control also have such drawbacks as lack of liquidity and reliability due to lack of integrity. The Bitcoin and other digital assets represent a mechanism that resolves the complex social problem by creating an autonomous and independent network, with viable structures and processes for self-regulation. However, the majority of the U.S. dollars in circulation exist outside of the United States and are used as a reserve currency for many emerging markets. But the problem with the dollar is that there is so much regulation surrounding it that it can be difficult to access in certain parts of the world. Bitcoin is different – Bitcoin can bypass government regulation because it’s a totally decentralized currency. Cryptocurrencies like Bitcoin don’t rely on governments and once their prices even out as adoption grows, they have the chance to be even more stable than fiat currencies.
Many alternative payment systems are already being developed. In fact, the use of physical currency has declined over the past 30 years (way before BTC) in favour of credit card and online transactions Their purpose is not necessarily the destruction of dollar hegemony but they are simply trying to build a more efficient payment system, devoid of the shortcomings that exist in the dollar as a unit of payment and a centralized system. Moreover, these are not always anarchically-minded projects directed against the dollar and risking bringing chaos. Often these are projects triggered by a group of banks, IT giants, or even industrial companies engaged in the extraction and processing of mineral resources. We see lots of interest in a new type of assets - the so-called stable moments - the essence of which is to combine all the advantages of cryptocurrency with the virtues of fiat money, in particular, the dollar, euro, Swiss franc and so on. The essence of these stablecoins is revealed in the possibility of making absolutely equivalent payments in a quasi-fiat currency (that is, secured by real assets and money), but without the participation of centralized institutions -- banks. Months after month we see an increase in the turnover of transactions made in stable currencies. This means that people and businesses accept this technology, adapt it to their everyday use. Perhaps, this is exactly the scenario that could significantly shake the position of the dollar in world markets.
The dollar is deeply entrenched in our way of life and Bitcoin is steadily gaining pace. it, however, is unlikely that Bitcoin will overtake the dollar in the United States any time soon; this does not strike off the possibility of that happening. Digital currencies could at some point beat down the hegemony of the U.S. dollar. Although, this may not play out until an economic event like a major recession makes people will run to a safe haven method of transacting like Bitcoin. it is notable that, despite the buzz that bitcoin is making many countries still haven’t taken to its adoption, many are sceptical about it, some are misinformed or unaware, while quite a number are not really spoken for. It's therefore not clear when a critical mass of countries accepting cryptocurrencies will be reached to create enough force for a USD beatdown.
On the other hand, bitcoin may never take over the USD but at the least, BTC could come as close as being the global reserve currency, replacing the dollar in emerging and unstable markets. The true outcome; only time will tell.
Credits- Anne Szustek, Talbot Sam, OlmstedBrian, Harrington Arina Zhukova, Yaroslav Lunev, KatiaShabanova, Wikipedia.
Published at: 1 week ago
Published at: 1 month ago
Published at: 1 month ago
Published at: 2 months ago
Published at: 2 months ago