The ongoing COVID-19 pandemic has brought into focus the need for international cooperation and support. Coupled with a crumbling economy, it’s shown us that now is the time for a modern, accessible reserve currency. Will the new reserve currency be a cryptocurrency? Before this, let's see what is a reserve currency and what is the world's reserve currency first.
What is a reserve currency?
A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments, transactions, and international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are priced in the reserve currency, causing other countries to hold this currency to pay for these goods.
What is the world's reserve currency?
The U.S. dollar is the world's dominant reserve currency, among other such currencies including the euro, the yen, the pound, the renminbi (RMB), the Canadian dollar, the Swiss franc, and the Australian dollar. A reserve currency is a currency held by central banks in significant quantities.
Holding a reserve currency minimizes exchange rate risk, as the purchasing nation will not have to exchange its currency for the current reserve currency to make the purchase. Since 1944, the U.S. dollar has been the primary reserve currency used by other countries. As a result, foreign nations closely monitor the monetary policy of the United States to ensure that the value of their reserves is not adversely affected by inflation or rising prices.
However, just as each great civilization has yielded to the next one, every reserve currency in post-Renaissance history has had a lifespan of about 100 years, leading many to believe the U.S. dollar is in decline and will give way to a new reserve currency. If there is to be a new reserve currency — and not to say there can only be one — it will need to be better than the world’s current reserve currency: the U.S. dollar.
Will the new reserve currency be a cryptocurrency?
This is where the value of cryptocurrencies is really on display for emerging markets because a cryptocurrency can be both fully accessible and received freely through network participation. This is true financial inclusion where it is not simply an exchange of fiat currencies to crypto ones but a new type of production that includes the financially excluded.
In the 12 years since Bitcoin’s inception, cryptocurrency has become the pinnacle of international economic cooperation in the modern era. Its value transcends political affiliation and sovereignty and is instead derived from algorithmic and calculable value. With its potential to completely reconstruct the role of government in the financial arena and its mission to revolutionize and expand access to markets, cryptocurrency is poised as a very real and viable candidate for the next global reserve currency.
What is the world's reserve currency? Will the new reserve currency be a cryptocurrency? Hope you can get a better understanding of these questions after reading this article.
