Could Bitcoin be the future international reserve currency?

Wednesday, June 19, 2024 ▪ 5 min read ▪ by Nicolas T.

The ECB has published its annual report on the international position of the euro. Will it soon compete with bitcoin in international foreign exchange reserves?

The Euro, an international currency in decline

If the dollar has struggled Lately, the euro hasn’t been doing much better. The introduction to the report written by the President of the ECB ends with a warning note.

“Some countries are increasingly seeking to bypass the main billing currencies for international trade and traditional cross-border payment systems (SWIFT). The accumulation of gold as a reserve asset continued, especially in countries closely linked to Russia, as well as in unconventional reserve currencies. Overall, this suggests that the euro’s international currency status should not be taken for granted.”

According to report, the single currency represents 20% of global foreign exchange reserves, a drop of 0.5% compared to the previous year. Given that global reserves amount to 11.45 billion dollars.

Let us remember in passing that Europe 250 billion euros frozen owned by Russia, without which the euro’s share drops to 17.7%…

The dollar’s share is 58.4%. However, this number is misleading as it is inflated by the appreciation of the dollar. O IMF recently provided a number of 55% at constant exchange rates.

The yen’s share reaches 5.7%, while the Chinese yuan (2.3%) remains insignificant compared to the economic weight of the Asian giant.

The ECB warns that geopolitical risk plays an increasingly important role in the management of foreign exchange reserves. In this regard, highlights a recent HSBC survey of 91 central banks that represent 65% of global reserves. It shows that “geopolitical escalation” is the most important factor affecting the composition of reserves.

And gold?

The ECB also highlights in its report a survey published by the Official Forum of Monetary and Financial Institutions in June 2023, indicating that almost 40% of central banks plan to increase their reserves in yuan over the next ten years.

However, it is gold that currently has the wind at its back. Shopping is on the rise. The yellow metal currently represents almost 20% of total foreign exchange reserves. Central banks have purchased more than 1,000 tons of gold in 2023.

China was the biggest buyer (225 tons). The Sino-Russian tango strategy is clearly to restore the gold standard, or at least solidify their currencies to do without the dollar.

For example, more than 80% of bilateral trade between Iran and Russia was settled in national currency, according to the Russian Deputy Prime Minister. According to Russian sources, 20 countries have joined its Financial Messaging System (SPFS), the local alternative to the SWIFT network developed by the Russian Central Bank.

The yuan, however, appears to be the first choice. The ECB notes that India has not been able to sustainably settle its imports from Russia in rupees. “In mid-2023, major Indian refiners began using the yuan to pay for Russian crude oil imports,” the report states.

When will bitcoin be in reserve?

Bitcoin is already a reserve currency for small countries like El Salvador and Bhutan. For example, El Salvador holds more than 5,000 bitcoins.

Additionally, some countries hold significant amounts due to seizures. It is estimated that 565,000 bitcoins are held by several countries, such as the United States, China, Bulgaria, etc. This is equivalent to 40 billion dollars. This represents 0.34% of global foreign exchange reserves.

We could also dare to say that all bitcoins are foreign exchange reserves. In fact, a country’s reserves are used when its citizens buy something abroad. From this perspective, bitcoin is a potential reserve currency. With a capitalization equivalent to US$1,250 billion, bitcoin represents 10% of global foreign exchange reserves!

Bitcoin is also a payment network that carries out massive transfers. Bitcoin transactions totaled approximately 1,000 billion dollars in 2023. To compare, Visa and Mastercard process US$9 billion per year.

Bitcoin has formidable advantages to stand out in the face of fragmented payment systems. Stateless, uncensored and with an absolute reserve of value, it is about to become the international currency of reference.

Don’t miss our article: India launches rupee globalization.

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Nicolas T.

Bitcoin, geopolitical, economic and energy journalist.

DISCLAIMER

The views, thoughts and opinions expressed in this article belong solely to the author and should not be considered investment advice. Do your own research before making any investment decisions.

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