Shares in this article
Forex in this article
?? US dollar suffers from expansive Monetary policy
?? Cryptocurrencies with a phenomenal year
?? Bitcoin is gaining in importance as a means of payment and a store of value
No question about it, 2020 could hardly have gone better for cryptocurrencies like Bitcoin. The most important cyber currencies were able to increase their prices and market capitalizations this year across the board. Bitcoin was even able to record a new record high at times. But where is the journey headed for the forefather of crypto currencies and is it even conceivable that the cyber currency will one day break the supremacy of the US dollar? Morgan Stanley expert Ruchir Sharma recently addressed this question in a column in the Financial Times – with interesting food for thought.
Expansive monetary policy with far-reaching consequences
Before the corona pandemic, the US dollar still dominated as the preferred “medium for international trade”, as a key currency and so-called reserve currency of central banks worldwide, as a store of value. But a lot has changed since then. In the wake of the economic consequences of the corona outbreak in the United States, the US Federal Reserve opened the money gates wide and, in addition, drastically lowered key interest rates, apparently in the belief that this would not affect the greenback’s status as reserve currency. However, the US budget deficit continues to grow in times of crisis.
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While it was worrying when US debt topped 50 percent of GDP, the 67 percent that has hit the deficit is likely to raise alarm bells around the world. Because, as Sharma points out, the US dollar will only maintain its status as a reliable currency “as long as the rest of the world still believes that the US can still pay its bills”. If this is not the case, the greenback could lose its supremacy. Examples of this abound in history, as the Morgan Stanley analyst recalls. So since 1400 “Portugal, then Spain, the Netherlands, France and Great Britain” enjoyed the status of reserve currencies. On average they were able to keep it for 94 years. The United States of America would have enjoyed it for 100 years – time for a change?
Bitcoin as the new reserve currency?
Perhaps, because the only thing that Sharma thinks is missing for a change is a worthy successor. But it could now have been found in the form of cryptocurrencies such as Bitcoin. The digital currencies not only shine as “decentralized, democratic alternatives” to conventional fiat currencies, the cyber currencies have also already proven themselves successfully in terms of value storage. Although the high market volatility of the Bitcoin price is still a bit daunting for many investors, there are still increasing voices that see Internet money more and more as a long-term gold alternative. The Deutsche Bank recently announced that Bitcoin was becoming more attractive as a security measure.
But not only would more people come back to Bitcoin & Co. as a store of value, digital currencies are also gaining momentum as a means of payment, according to the Morgan Stanley expert. In particular, the countries that would have discovered Bitcoin as a reserve currency for themselves that would not get US dollars as easily as Argentina and Nigeria. The step taken by the payment service provider PayPal to accept Bitcoin payments would also drive cyber currencies even further.
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Greenback is not immune to defeat
In conclusion, the Morgan Stanley expert issued a warning that the US government should not assume that the greenback would not lose its reserve currency status as a result of the continued loose monetary policy: “Do not assume that your traditional currencies are are the only stores of value or medium of exchange that people will ever trust. It is unlikely that tech-savvy people will stop looking for alternatives until they find or invent one. ” In addition, he points out that the urge by governments and central banks to regulate digital currencies could have the effect of making “this populist revolt” happen even faster.
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