The U.S. dollar continues to wane as the global reserve asset, sparking hopes that bitcoin could soon replace the greenback. Alternative currencies are filling the gaps in the meantime.
What Is De-dollarization?
De-dollarization refers to the global decrease in the reliance on the U.S. dollar as the standard currency to use both in trade and as a reserve asset.
Currently, the dollar amounts to just under 60% of the world’s foreign exchange reserves, but this number is slowly going down.
The United States has used its position as the issuer of the global currency to impose sanctions on other countries, such as Russia, by restricting trade and freezing reserves.
Currently, 29% of the global economy is being sanctioned by the U.S., which is using the dollar as the weapon to enact these sanctions.
This has led to fears across the globe that relying on the dollar as a reserve currency leaves a country vulnerable to American economic dictatorship.
How Far Has It Gone?
Several countries have been making moves to distance themselves from the use of the dollar in recent months.
China and Brazil have agreed to settle trades in their own currencies, rather than using the dollar as an intermediary.
Argentina has also declared it will deal with China in Chinese Yuan as opposed to the greenback.
China and France are also making trades in Yuan, rather than the dollar.
But it’s not just China getting on board with de-dollarization.
Iran and Russia are exploring issuing their own digital currency backed by gold, so as to circumvent U.S. sanctions.
India and Malaysia are now trading in Indian Rupees, furthering the demise of the dollar.
The BRICS members (Brazil, Russia, India, China, and South Africa) are also exploring issuing their own currency, making the dollar redundant in their dealings with each other.
Clearly, many countries around the world are trying to move away from needing the dollar to do business.
Who Is Filling The Space?
It seems like the Chinese Yuan would be picking up the slack left by the dollar’s decline.
This is the case to some extent, but other reserve currencies such as the Euro, British Pound, and Japanese Yen are also being traded in place of dollars.
Mainly, the world is falling back on the oldest reserve asset in history.
Gold.
Gold is trading at all-time highs, with central banks buying up record amounts in 2022 – over 1000 metric tons.
This is expected to continue as central banks lose faith in fiat currencies as secure and stable reserve assets.
Is De-dollarization Overblown?
For now, the dollar is nowhere near losing its status as the global reserve currency.
Alternative currencies or assets like gold and bitcoin are simply not in the necessary position to supplant the global hegemon.
However, with the U.S. banking and debt ceiling crises, as well as geopolitical tensions reaching recent highs, de-dollarization is likely to continue.
It’s very unlikely that another fiat currency will take its place. It would simply have all the same problems.
That leaves only gold or digital gold, bitcoin, as viable options.
Since bitcoin has all the benefits of gold and none of the drawbacks (such as being difficult and expensive to transport as well as easy to seize) it seems clear that bitcoin is best placed to take advantage.
If a changing of the guard is to take place, bitcoin has all the qualities to become the next number one.
