Among the last five dominant currencies, the average of their validity is 94 years. The US has printed inorganic money in unprecedented amounts in 2020.
Ruchir Sharma, Morgan Stanley’s global head of investment strategy, says in an opinion piece that can be found in the Financial Times that the dollar’s dominance as the global reserve currency could end as “the rest of the world begins to lose confidence in the United States capacity to pay its debt.
Sharma also states that “there are enough reasons to think that the latest bitcoin boom is rooted deeper than what it seems.” Morgan Stanley manages more than $ 710 billion in assets.
Sharma shows a compacted summary of the reign of five currencies that took turns in the role of dominant currency before the dollar, from the middle of the 15th century to 1920. These currencies locations were Portugal, Spain, the Netherlands, France, and England.
The period of supremacy of each coin was 94 years, on average. «At the beginning of 2020, the dollar reached 100 years of domination. This is enough to wonder how much longer it could go on, except that there is no clear successor,”Sharma argues.
Europe was hopeful that the euro, created in 1999, had the potential to be a successor to the dollar, Sharma says. “But that currency lacks enough confidence in the world, due to doubts about the effectiveness of the multi-state government of the eurozone,” says Sharma. He also talks about China’s aspirations for the renminbi to hold back.
Sharma infers that the fact that the dollar still cannot find a clear successor would allow the US government to print inorganic money in unprecedented amounts, without fear that this would undermine the dollar’s status as a reserve currency.
But one contender is emerging: cryptocurrencies. Operating in peer-to-peer networks, not supervised by any state, cryptocurrencies such as bitcoin appear to be a formidable option and are seen by their proponents as decentralized and democratic alternatives, ”says Sharma.
The pandemic contributed to the fact that the emergence of cryptocurrencies as an alternative is no longer seen as something speculative or mere marketing, says Sharma. “Fearful that central banks, led by the US Federal Reserve are going to devalue their respective currencies, many people bought bitcoin. Its price has quadrupled since March, making it the most attractive investment of 2020.
Then Sharma mentions the volatility of bitcoin when he contrasts the bitcoiners who want to establish this cryptocurrency as the ‘digital gold’, while the skeptics, in his opinion, ‘do not feel safe with an asset that deals with such volatility: the last bubble of bitcoin exploded three years ago, and the daily variability of its price is still four times greater than that of gold.
Skeptics, Sharma says, are particularly well represented by those who did not grow up with digital technology, who prefer gold, which has been used as protection, for centuries, against the deterioration of established currencies.
The executive acknowledges that the most relevant use of bitcoin keeps being the investment, but that there are small and medium-sized companies that are using it in international trade, in countries where there is difficulty in obtaining dollars, or where the local currency is unstable. He also adds that PayPal and its subsidiary Venmo are hoarding bitcoin, intending to accept it as a means of payment in 2021.
Even if bitcoin’s current notorious rally is a bubble, it should serve as a warning against money printing, especially in the United States, Sharma notes:
“Don’t assume that your traditional currencies are the only store of value or medium of exchange that people will trust. Those familiar with technology will continue to discover more suitable alternatives. And the option to regulate the cryptocurrency boom, which some governments are considering, can only accelerate this popular uprising.
By: Jenson Nuñez.
