As the former reserve currency of central banks and the standard of the global oil market,the US dollar has dominated the world financial system for 70 years and have served as a global currency or a safe haven for those seeking to escape their own crumbling domestic currencies. However, the status could change soon.
Despite the performance of the U.S. economy under President Donald Trump, the idea of a new currency of the world’s financial infrastructure is gaining popularity. Simon Yu, CEO of StormX, and Adam Draper, founder of Boost VC, recently hosted a chat at the lakeside in Seattle to discuss the future of the Bitcoin and Blockchain technologies.
During the discussion, Draper had predicted, that the world one day “will be based on a single financial system”, with bitcoin the most likely candidate. Although, this forecast would correspond to the growing number of analysts, predicting the end of the dollar era, it would differ in that they tend to see the Chinese yuan as a successor.
A Chinese future – Reasons to believe in the Yuan
The first reason is China’s growing influence on the oil industry. Although oil is traded in dollars since 1973, China uses its leverage as the world’s largest oil consumers to put some countries under pressure to trade the Yuan. Moreover, China and Russia have already agreed, to be a part of their traded energy in Yuan and China hopes to persuade other key suppliers like Iran, Saudi Arabia and Angola – to follow suit.
Another reason is China’s growing power in the developing countries. In the year 2013, XI Jinping announced the road and belt initiative. The current project aims to strengthen the infrastructure, trade and investment relations between China and about 65 other countries, which together make up about 30 percent of global GDP. Given the high level of investment, it is clear that China expects a strong political leverage.
The third reason is the tense relationship between the United States and a growing number of countries. The United States currently lead an economic war against one-tenth of the world’s countries.
A truly global currency
Although the Yuan certainly has strong arguments, one should still consider Bitcoin. The countries that experience a strong inflation, have already demonstrated their faith in Bitcoin. In Venezuela , as well as in Zimbabwe, citizens are flocking towards Bitcoin as a store of value and as a medium for cross-border transactions. The actions of citizens in Venezuela and Zimbabwe clearly show the potential that sees Draper:
“People who have recently entered the room, don’t understand how big the chance is to have their own money.”
While governments can try to prevent citizens from converting their failing currencies into “safe” ones like the dollar and the euro, it is much harder, if not impossible, to prevent access to Bitcoin. Although countries can be excluded from participating in the financial market for a variety of political reasons, no country has that kind of power over the crypto-currency Bitcoin. The decentralized character is just one of the many aspects that make it a potentially superior global currency.
Barry Eichengreen, Professor of Economics at the University of California, Berkeley, argues for a future in which multiple reserve currencies exist side by side. He predicts that the future will consist of dollar, euro and Yuan and discredited Cryptocurrency due to their volatility.
But maybe all four could coexist one day on an equal footing, using Bitcoin much like the gold standard . Overall, it remains to be seen whether Bitcoin will replace the other currencies, competing for the first place, coexist, or overtake.