Greetings friends!
(AI generated image)
Recently, BlackRock CEO Larry Fink sparked debate by suggesting that Bitcoin could one day become the new global reserve currency, potentially replacing the US dollar. This idea challenges the foundation of the current global financial system, in which the US dollar has long held the top spot.
The US dollar functions as the primary reserve currency, meaning most international trade and cross-border transactions are conducted in USD. This status relies not on any physical backing since the gold standard was abandoned in the 1970s, but on trust in the US government’s economic and political stability. However, with US national debt now exceeding $36 trillion which is more than the combined GDP of India and China, there are doubts about the USA’s reputation. Hence, concerns are growing about the sustainability of that trust.
Historically, the British pound held this dominant position before being overtaken by the dollar. Now, with rising debt and shifting geopolitical dynamics, the dollar’s dominance faces new threats. The BRICS nations-Brazil, Russia, India, China, and South Africa are trying to launch a BRIC currency. While the President Donald Trump warned against such moves, many countries have already exploring possibilities of trading with China using the Yuan or Renmimbi. In short, the US dollar’s dominance is under pressure.
USD’s dominance is not just symbolic, it is the backbone of American global influence. Throughout history, the US has taken aggressive stances to maintain this dominance. It’s unlikely that the US would allow Bitcoin to replace its currency without resistance.
Moreover, Bitcoin itself has many limitations for being as a potential reserve currency. While its decentralized nature means it’s not controlled by any central bank or government, making it immune to policy manipulation, that same decentralization is also a vulnerability. There are no mining restrictions, and countries like Bhutan have already begun stockpiling Bitcoin, with over 13,000 Bitcoins reportedly held in reserve.
Bitcoin is capped at 21 million coins, which prevents inflation but also limits scalability. That fixed supply might be far too small to support a global economy which is expanding in size every year. The energy consumption involved in mining is another drawback, as it leads to pollution. Also, there is the risk of cyber-attacks. Ownership is also highly concentrated as just a few large holders control a significant portion of Bitcoin, raising concerns about wealth inequality on a global scale. If Bitcoin were adopted as a reserve currency, countries that haven't invested in it like India, could lose out, while smaller players like Bhutan might see windfall gains.
Currently, the US dollar still accounts for around 60% of global reserve holdings. Losing that status would be catastrophic for the US economy, and it is unlikely that US would accept such a shift without a fight.
In conclusion, while Bitcoin is gaining recognition and has unique strengths, its flaws combined with the political and economic stakes of global reserve currency status of the USD make it unlikely to replace the US dollar anytime soon.
What do you think? Please let me know through your comments.
Thank you!
Source: https://fortune.com/2025/04/01/larry-fink-letter-bitcoin-dollar-national-reserve-currency/