The increase in the popularity of Bitcoin has caused some to consider the cryptocurrency layers to outperform the US dollar.
The US dollar has been the reserve currency for the last decades; However, since Bitcoin made its appearance some consider it could be in danger.
A few months ago, during the Libra hearings, a US congressman said that cryptocurrencies could pose a threat to the dollar. The official, named Brad Sherman, stated that:
“The cryptocurrency does not work, in which case investors lose a lot of money, or perhaps achieve their goals and displace the US dollar or interfere with the US dollar being practically the only reserve currency in the world”.
Sherman also said that dollar domination brings great benefits to Americans. These advantages include profits generated by the Federal Reserve for the United States Treasury. In addition, it has the capacity to influence the policies and actions of other countries through economic sanctions.
“We are likely to lose all that because cryptocurrency is the currency of the crypto-patriot”.
But it is precisely these characteristics that make the dollar have a worldwide supremacy that has made many people decide to bet on Bitcoin.
And it is not only about the supremacy of this currency. It is about the dollar being subject to a State with particular interests. When it became the main reserve currency, it also allowed the United States to intervene more directly in the economy of other countries.
Is this the end for dollar supremacy?
This is not the first time a public official warns about this issue. In 2013, Congress published a report stipulating that greater use of Bitcoin and other cryptocurrencies would affect the stability offered by the dollar. Especially if these new currencies exhibit high volatility.
The report said that if Bitcoin replaces the dollar in the long term, the need to keep the US currency will decrease. This would result in an increase in the supply of fiat money. In the end, this could reduce the demand for dollars.
“In this case, for the Fed to maintain the same degree of monetary accommodation, it would need to undertake a compensatory adjustment of monetary policy (…). At a minimum, a substantial use of Bitcoins could make speed measurement more uncertain and judge the appropriate monetary policy stance uncertain”.
Although Bitcoin replaces the dollar in the short term seems somewhat unlikely, every day it becomes a more real possibility. Cases like the one in Iran, which used digital currencies as an alternative to evade US sanctions, are becoming more common.
Whether Bitcoin or not, there is certainly a growing movement to replace a global reserve currency based on fiat. In addition, a single issuer is no longer sought. Instead, an algorithm-based and sovereign-free alternative is wanted.