Crypto enthusiasts aren’t supposed to be the top priority in the 75th anniversary of the Bretton Woods Conference. Because of the expensive and risky international conversions, its really a bar to the hedgers and currency holders. Hence there are some other facts that include trade tensions, threat of military action and combination of monetary easing. Interoperability and international economic cooperation just contributed to the global discrepancies disturbing the markets that day. Administrative vaunting and platitude of questions are making the U.S. dollar more preferable as a global reserve currency. The share of U.S. dollar in Foreign Exchange Market is over 60% and it held leadership for 100 years and that’s why it’s reign may soon be up. In upcoming decades hopefully the currency dominating space will get changed and Bitcoin will be the part of global reserve currency.
44 nations made the U.S. dollar a global reserve currency by a pact in 1944, which would be pegged to gold. According to the agreement, remaining nations would peg their currencies to the U.S. dollar. To perform relevant activities IMF (International Monetary Fund) and World Bank were founded.
Meanwhile, at the time President Richard Nixon retired the country from the gold standard in 1971, the U.S. dollar terminated being the global reserve currency officially. Countries preferred holding more U.S. dollar than all other foreign currencies combined as it maintained relative stability and helped in easy transaction.
One of the facilities of being a global reserve currency is that it can take away the power to influence the domestic economy. The dollar’s credibility will be feeble if the foreign holding of U.S. debt is unloaded where the current amount of it is up to $6 trillion. It will be happened if U.S. President Trump influences a devaluation of the U.S. dollar. If it doesn’t happen, the currency’s global demand will be increased.
New Reserve Currency
For being a global reserve currency some qualities of that currency are required and these qualities are-
-it should have flexible supply,
-can be reserved in exchange of gold,
-it should have the possibility to be outstripped by the economic growth,
Bitcoin can’t take the place as it is volatile. It should soften in line with greater liquidity. Preferences for fiat will not be given up by the businesses and sovereign power.
You can take a model of Facebook Libra which used to peg a digital token that can be used for settlement. In this model government debt and currencies are repeatedly rebalanced. The coin is lacking of strong distrust and corporate motive with global ambitions. In another model of SDR a basket of currencies was created by the IMF to perform as a private transaction token and a store of value for members. Its value moves with underlying currencies.
A liquid SDR would be subject to vulnerabilities and national priorities which are counted down as a problem in the way of being a global reserve currency. Taking SDR as a reserve could destabilize the basket. Euro can’t rush to this space because of its existential risk. British pound has an uncertain future. To maintain flexibility and reflect economic activity, other currencies would form part of the baskets.
Time to speak
The mechanism of currency is full with colossal complications of maintaining of peg. It is convicted that the increasingly apparent politicization of currencies will give a concept that let’s start talking about this. Deep change costs a great amount of political and economic. Financial evolution is a common incident but how will the next one look like is unknown. Monetary institution of every era is virtually unimaginable until they are made.
Anniversary celebration of Bretton Wood asked for the current reserve system, the role of the IMF and how to weather the economic whirlwind in front. There is not that much fear to take everyone to the table. Bitcoin is attaching a new tool to the box of potential solutions.