29 Bitcoin is Said to End the Hegemony of the US Dollar. What do you think?

There’s been a lot of talk lately about Bitcoin as “digital gold” and whether it could become the next global reserve currency. Many self-proclaimed financial experts on social media push the idea that Bitcoin will eventually replace the US dollar as the dominant currency in international trade and finance. But is this really possible?

As we discussed earlier, for something to function as money, it must serve key roles: a medium of exchange, a unit of account, and a store of value. More importantly, for a currency to become a reserve currency, it must be widely accepted, stable, and capable of facilitating large-scale global transactions.

For Bitcoin to become a true reserve currency, the US dollar would have to lose its dominant role, and Bitcoin would need to take its place. Right now, that scenario is far from reality. Unlike the dollar, Bitcoin does not yet perform the functions of a reserve currency efficiently.

One of the biggest limitations of Bitcoin as a reserve asset is its fixed supply. There will only ever be 21 million bitcoins in existence, which makes it inherently scarce. While scarcity is what gives Bitcoin its appeal as a store of value, it is also what prevents it from functioning as a practical reserve currency. A global reserve currency needs liquidity – meaning there must always be enough of it circulating to support international trade and financial stability. The US dollar can be created or reduced in supply by the Federal Reserve, adjusting to economic needs. Bitcoin, by contrast, is hardcoded to be scarce, meaning that if demand rises, its price will skyrocket, making it too volatile for businesses and governments to rely on for pricing goods or settling international debts.

Another major issue is Bitcoin’s price stability – or lack thereof. The US dollar fluctuates, but compared to Bitcoin, it is extremely stable. A global reserve currency must be predictable in value. If companies and governments used Bitcoin for trade, the price of a contract could fluctuate wildly within minutes, making long-term agreements impractical. Imagine a company pricing an international deal in Bitcoin and then watching its value drop 20% in a day – such volatility would make financial planning nearly impossible.

Finally, Bitcoin lacks institutional backing and enforcement mechanisms. The US dollar isn’t just widely used because of economic tradition – it is supported by the Federal Reserve, the US government, and the largest financial institutions in the world. The dollar is embedded in international trade agreements, banking systems, and legal frameworks that provide a safety net in times of crisis. Bitcoin, on the other hand, operates without a central authority, meaning no institution can intervene if there’s a financial crisis. While this decentralised nature is what some Bitcoin supporters praise, it also means there is no lender of last resort – no system in place to stabilise the currency during turbulent times.

So, will Bitcoin become the next global reserve currency? As of now, that seems unlikely. While Bitcoin may continue to grow as an alternative store of value, similar to gold, it does not yet function as a stable unit of account or a reliable medium of exchange on a global scale. The world’s financial system needs flexibility, stability, and liquidity – three things Bitcoin currently lacks.

For Bitcoin to challenge the dominance of the US dollar, it would not only need to prove itself as a practical currency for everyday transactions but also gain the trust of central banks, governments, and global financial institutions – something that has not yet happened. Until then, the US dollar remains the undisputed reserve currency of the world.