Digital Currency

Can the Bitcoin be a reserve currency?

The sky-rocketed popularity has given birth to an intriguing question; could Bitcoin become a global reserve currency? There are number of things to consider. As a reserve currency, it can’t be printed with regulations from government. Which leaves a question mark in terms of retaining value. Bitcoin can’t be traded for merchandises and services or provide security for debt and serve as dependable stores of value compare to other reserve currencies such as gold or silver.

Things to consider for Bitcoin

In a world where gold is the only reliable reserve currency or the only reliable financing for government-issued paper money, it’s going to be real tough for Bitcoin to earn acceptance.

Bitcoin value must be based on rarity and its reliability as money, as there is no real-world service financing the virtual currency. The two thoughts are self-implicated: there must be need for the virtual money to create rarity, and the basis of demand is the virtual currency’s approval as money that can be used to buy services, commodities, goods, and gold.

In terms of quantity, we can’t set a limit for Bitcoin as reserved currency with all the regulations from government. It won’t matter whether you own billion or trillion amount of reserved currencies, as long as you can’t set a standard value.

Global acceptance as money or a store value which can be traded for goods and services; another mater to consider before accepting Bitcoin as a reserve currency.

Intrinsic struggle is prominent between these two requirements. In the global economy of $60 trillion, you need to have plenty of it around to smear large and small transactions in all types of markets. If we suppose the US dollar as a standard, then you need to have a minimum of $1 trillion in quatloos to be considered as a global reserve currency.

Nations comprise an estimated $7 trillion in USD reserves, about $3 trillion euros and $1 trillion or so in yen, pounds and other currencies. In that though you need to have another trillion to hold these quatloos as reserves.

On the other hand the scarcity value would be removed due to the amount of quatloos. So it asks for bit more regulation in terms of issuing the amount of quatloos in the market.

Once the demand skyrockets driving the value higher, holders of the quatloo would celebrate. But this volatile marked can’t provide any security for those seeking to use the quatloo as a reserve against currency. Volatility stands as the main enemy of reserved currency as the holder of reserves needs a liquid currency that predictably retains its value. Any volatile currency cannot be traded in quantity without considerably affecting the market value of the currency.

In the end,

These terms present an abrupt challenge for any virtual currency, but they are not impossible. Non-state issued virtual currencies still has a role to play in the global economy, particularly if government issued regulations devalue due to huge money creation by desperate central banks and state treasuries.

All of these thoughts can’t verify but sure can modify that Bitcoin offers a real-world experiment.

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