Is Bitcoin a Threat to the Dollar?

DrawKit Illustrations on Unsplash/Creative Commons
Photo by DrawKit Illustrations on Unsplash

The world has used the U.S dollar as the reserve currency for decades. However, some people believe that Bitcoin’s rising popularity threatens this global supremacy of the U.S dollar. Some people have even warned that digital currencies like Bitcoin threaten the dominance of the U.S dollar over the current financial system.

Essentially, Bitcoin will displace the U.S dollar or interfere with its purpose as a reserve currency of the world if it works and achieves its goal. But if this virtual currency fails, many investors will lose their money.

Currently, some experts believe that the dominance of the U.S dollar over the other currencies has many benefits, especially for Americans. For instance, the Federal Reserve generates profits for the U.S Treasury. What’s more, the dollar’s dominance enables the U.S to influence the actions and policies of other countries using economic sanctions. Therefore, the U.S is likely to lose such privileges if Bitcoin succeeds.

Bitcoin for the Emerging Markets

Experts have noted that the increasing crypto interests have a connection with emerging markets. And this has further prompted officials in the Federal Reserve to wonder whether Bitcoin threatens the U.S dollar. Essentially, some investors in developing and underdeveloped nations choose to use Bitcoin as their safe asset.

In the past, such people used the U.S dollar or gold as their safe asset. However, Bitcoin is replacing these alternatives by providing safety to some investors in unstable regions. Crypto bulls champion Bitcoin as value storage that people can use to debase fiat currencies or hedge against inflation.

To some people, Bitcoin is digital gold. Additionally, Bitcoin presents a way for people to pay for services and goods, the way they use fiat money. That’s why many people are rushing to purchase this virtual currency on platforms like bitcoin-buyer.app. Also known as crypto exchanges, these platforms allow people to buy Bitcoin using fiat money.

Some officials in the Federal Reserve are concerned about the increasing Bitcoin transactions on such platforms. Some are worried that more people are trading Bitcoin, investing in it, and using it for international transactions instead of the U.S dollar.

The Declining Dollar’s Monopoly

Several politicians have expressed concerns about how Bitcoin is likely to affect the U.S dollar. Some are worried that nobody knows how the future will unfold. While the dollar has historically worn due to its backing of the largest economy and a stable policy, beating Bitcoin might not be easy.

If people continue using cryptocurrencies like Bitcoin, the world will have more monetary units. And this will affect the stability of a single incumbent, which is the U.S dollar. The impact could be worse because of the high Bitcoin’s volatility.

If people substitute Bitcoin for the U.S dollar on a long-term, systematic basis, the need to hold dollars will decrease while fiat money’s supply will increase. And this will lower the dollar’s demand, thereby affecting the circulation rate.

And when this happens, the Fed will have to compensate for the tightening monetary policy to maintain the same monetary accommodation level. Bitcoin’s substantial use could make velocity measurement uncertain. What’s more, judging the monetary policy’s appropriate stance would be unclear.

Final Thoughts

While some people are increasingly using Bitcoin as an exchange medium, some experts argue that the cryptocurrency might never become a value storage and accounts unit. What’s more, Bitcoin is facing stiff competition from countries like the U.S that don’t want to let go of the dominant position of their fiat currencies. At the same time, some countries and individuals are experimenting with Bitcoin. However, only time will tell whether Bitcoin threatens the U.S dollar or not.

 

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