Bitcoin, the world’s most famous crypto, could support the US dollar (USD) in the near future. This revolutionary idea is the subject of debate among economists and policy makers. Let’s look at the different arguments put forward by both sides.
The multiple advantages of a USD backed by bitcoin
Adopting bitcoin as a store of value for the US dollar would be a bold move. The international monetary system would then be based in part on a decentralized cryptocurrency, not issued by a central bank.
For the defenders of this project, bitcoin offers a credible alternative to gold. Although traditionally used to guarantee the value of currencies, its mining is very costly financially and environmentally. Bitcoin’s blockchain technology, with its decentralized network of computers, makes transactions secure. But also, to limit falsification and thus reduce the risks of inflation.
Additionally, pegged to bitcoin, USD would benefit from a limited, pre-scheduled supply of new bitcoin. Which, unlike traditional currencies like the euro or the yen, depends on the more arbitrary decisions of central banks. Some economists conclude that the dollar would become a safe haven again more attractive to investorsreinforcing its status as the world’s leading reserve asset.
Considerable pitfalls to overcome
However, many dissenting voices are being heard among economists and central bankers warning against a hasty transition from USD to bitcoin.
The first pitfall often cited is the still very high volatility of the bitcoin price, subject to sudden variations that are difficult to predict. Indexing the world’s main reserve currency to such an asset with an unstable price could destabilize the American economy and, by extension, the international monetary balance.
Another major obstacle is China’s dominance in bitcoin mining. That is to say, the validation of transactions by solving complex mathematical equations. Chinese mines control around 70% of the Bitcoin network’s computing power. If the dollar were backed by this crypto, the Chinese sphere of influence would constitute a threat to American sovereignty and a systemic risk in the event of conflict between the two powers.
Linking the fate of the American dollar (USD) to that of bitcoin would constitute a historic break in the international monetary system. While some see decisive advantages, serious technical and geopolitical obstacles remain. A broad public debate seems essential before a reorientation of such magnitude with potentially destabilizing consequences. Whatever the final decision, the rise of crypto nevertheless seems inexorable.
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