At the moment, the US currency is having hard times: it is worn out by the fight against inflation in the United States, a total weakening with the Fed's current monetary policy and a series of negative forecasts. Experts' statements on possible USD displacement by other currencies add more fuel to the fire.
Many experts are worried whether the key currencies, such as euro, yen or yuan, will be able to take the place of the greenback. A similar question arises in relation to cryptocurrencies, primarily bitcoin. Currently, the dollar has strong support in the form of the long-standing global financial system, and it is extremely difficult to throw it off the throne. However, many analysts believe that nothing is impossible. They concede that if current conditions worsen, the US currency will give up its position.
The current currency regime, which implies global dominance of the USD, may fail. With this scenario, other currencies will come out to the world financial arena. First of all, we are talking about European, Chinese and Japanese currencies. Then, they may be supplemented by their digital counterparts, in particular bitcoin, experts say.
The domination of the greenback has given the United States a number of economic and political advantages. Many experts call them "an inordinate privilege of the dollar". However, its continued reign is in question. Analysts report a decline of the US dollar in global reserves, which is partly compensated by reserves growth in euros, yen and yuan. Bitcoin also steps on the dollar's toes. It seeks to strengthen its position among the key global currencies.
Reliant euro
According to experts, the single European currency has long been a strong competitor to the US one. Behind the EUR is the confidence and strength of a number of European economies. There are weak formations among strong eurozone countries, such as Germany, but in general there is a balance between them. In 2010 the ECB provided invaluable support to the euro. During the crisis it formed and implemented a package of financial assistance, preventing the collapse of the euro zone and the destruction of the single currency. Currently, the EUR is considered the second largest reserve currency in the world, and the volume of these reserves in central banks amounts to €2.5 trillion ($2.94 trillion).
Relentless yuan
With regard to the Chinese currency, many experts agree that it is capable of making a real threat to the dollar. For the past 10 years, the Celestial Empire has been trying to make the yuan competitive against the USD but without success. However, Chinese authorities are not giving up and little by little they are reclaiming financial space for their currency. According to analysts, the world's second largest economy has a chance to succeed despite legal difficulties within the country. Experts believe the main problem of China is the closed nature of its economy and total control over finances. Economists think that to become an effective reserve currency, the yuan should be easily tradable. High liquidity and the ability to adapt to sharply changing market conditions, such as the coronavirus pandemic, play an important role in this issue. At the moment, the Chinese currency does not have these qualities. Previously, the Celestial Empire tried to create a two-tier system in which the traded yuan circulated abroad and the other type of currency was in use at home, but failed. However, such attempts have not ceased until now, experts emphasize.
Samurai tranquility of yen
The Japanese currency tries to maintain a balance in any situation and it usually succeeds. The difficulties are as follows. The financial system of the Land of the Rising Sun is prone to isolationism, so access to global markets is difficult. At the same time Japan does not seek to create an international reserve currency. According to analysts, the authorities of the Land of the Rising Sun have no global financial ambitions, like China. Japan's leaders are comfortable with any scenario: with the yen's possible dominance and its secondary status. The Japanese currency's strength is in accepting the current situation, experts say.
Put in a good word for bitcoin
After traditional currencies, a major digital asset enters the international financial scene. There has been a lot of speculation about bitcoin, because its properties as a global means of payment are still in question. Many market participants view bitcoin as a protective asset, a means of capital preservation. They call the cryptocurrency No.1 digital gold, although it loses to the yellow metal on a number of positions. One of the negative factors about bitcoin is that investors are cautious about a new asset that also exists virtually. However, the situation in the financial world is changing, and with it, the level of confidence in bitcoin is growing. This allows experts to conclude that bitcoin is becoming more competitive against the dollar. Many experts pay attention to the high geopolitical attractiveness of the crypto-asset, which in the near future may become an international means of payment.
The disadvantages of bitcoin are high volatility and lack of control over the authorities, which negate the possibility of its introduction as a reserve world currency. According to some experts, the future is in the implementation of digital currencies of central banks (CBDC) at the international level. CBDCs are not digital assets in the conventional sense, but instead are completely different from cryptocurrencies. Central banks may control CBDCs more tightly than fiat money. It is estimated that in the long term it will effectively affect global trade and most key currencies.