The dollar is a widely held reserve currency that is also most commonly used for across the border trade. The certainty of the dollar to the world economy confers some chief benefits to the United States, including easy borrowing power and expanding the reach of financial sanctions. But this is not IT to the benefits that the dollar users enjoy. According to a recent report published by the IMF, 62% of the currency reserves around the globe are held in US dollars, which is more than double the combined foreign holdings of euros, yen, and renminbi.
Besides, the currency is accepted worldwide for transactions and is considered the most powerful one. In 2018, around $1671 billion of the dollar was in circulation in the economy, half of which was in circulation abroad. You will not believe that around 90% of foreign exchange trading includes the US dollar, and almost 40% of the world’s debt is issued in it.
It is because of all these reasons that the dollar is the most important currency in the world.
But will it get replaced by cryptocurrencies?
A lot of speculation has been going on regarding the replacement of the dollar by bitcoin, but no one has been able to answer with certainty. We all know that the value of bitcoin is not pinned to stacks of gold, but the dollar is stable and trustable worldwide. It is a reserve currency that supports international trade and the global economy. But will it continue to hold the position for long? Might crypto replace it in the near future?
Bitcoin was introduced as an abrasive idea that keeps buzzing so loud nowadays that it just won’t go away! Initially, billionaires kept dismissing it, but they are coming forward to accept it as a mode of payment in the last few years. Investors and big companies like PayPal, Tesla, and Square have realized its importance and are beginning to regard it as a reliable payment option.
Bitcoin was created by Satoshi Nakamoto in 2008, though his identity is still not known to anyone. The purpose behind creating the intangible asset was to carry out free international transactions without imposing rules and regulations by the central government and to lessen the fee charged for conducting such trade.
The currency exists through the internet using blockchain technology, which automatically records all the transactions carried out using crypto. Since there is no institution backing it, it is considered a decentralized network, which is probably the main reason people prefer using it over any other currency. However, there are only 21 million bitcoins that can be mined, and people have already reached the limit of 18.5 million.
The limitation of mining on a certain number of crypto keeps us from scaling during financial crises. It is one of the reasons that the anti-crypto crown is so down on its mainstream use. Additionally, the use of dollars as the basis of international and domestic commerce works best from the practical standpoint because investors want a safe place; they want stability to be able to conduct their investments in that currency.
So, let’s look at the two most important reasons why virtual money can never replace the dollar:
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Taxation of Crypto
Today, crypto is used more as a speculative investment rather than a currency. Even the IRS deems it a property, meaning that you have to pay taxes when you sell or exchange it. For instance, let’s say you bought a car for $80,000 by paying $30,000 in cash and the rest via bitcoin, which values $50,000 today. If you had purchased bitcoin at $10,000, you now owe taxes on the gain of $40,000!
The above reason makes bitcoin unfriendly to be used as a currency and one of the reasons why it can never replace traditional money. Also, it is not so easy to get a currency to replace the dollar that is more like gold. Click here to learn more about crypto taxation and investment.
A Regulation Nightmare
We already know that bitcoin trading is decentralized, which makes it unsuitable for exchanging for dollars. There is no protection from it being stolen, hacked, or any insurance that provides a shield against theft. As the block ledger uses codes to name the buyers and sellers, there are chances of illegal money movement. Moreover, there is no way to account for the transactions and the origin of money, creating the risk of money laundering.
So, do you think the US will ever support a currency that it cannot even track?
Visit this site to find out how to keep your virtual money safe from scammers.
According to a survey conducted by consulting giant Deloitte of finance industry executives, virtual assets are likely to replace fiat currencies in a few years. The report says, “Deloitte’s 2023 Global Blockchain Survey states that banks should welcome their inevitable electronic future. In a tremorous shift, financial leaders increasingly see virtual assets as the future.”
The report strongly indicates the speculation that a virtual asset revolution could soon be upon the people around the world – and those who fail to follow the trend will lose out. As money is increasingly being stored in the form of digital assets, chief institutions and investors are looking for new ways to do so.
However, some arguments oppose the above speculation. As already said, bitcoin is a highly volatile and decentralized asset that keeps no detailed record of the people in the business. Although the transactions carried out using it are subject to fewer fees, you have to pay taxes on their gain, which is a convenient way for the hackers to launder. Not to mention the number of carbon emissions in its mining that is affecting the environment badly.
Hence, there are a lot of obstacles in the way of this concept going mainstream, especially with a major push to eliminate carbon emissions.