Bitcoin, future international reserve currency?
The annual report of the European Central Bank on the global position of the euro has been released. Will it soon face off against Bitcoin in terms of global reserves of foreign currency?
The euro is also not having a good time if the dollar is having problems lately. A caution appears at the end of the ECB President's report introduction.
An rising number of nations are attempting to forgo traditional cross-border payment services like SWIFT as well as the primary currencies used for international trade invoices. As a reserve asset, gold kept accumulating, especially in nations with close ties to Russia and in non-standard reserve currencies. All in all, this implies that one should not take the euro's standing as an international currency for granted.
The research states that, despite a 0.5% annual decline, the single currency now represents 20% of the world's foreign exchange reserves. being aware that the world's reserves amount to 11,450 billion USD.
Let us just remember that Russia possesses 250 billion euros that Europe has frozen, without which the euro's share drops to 17.7%.
The percentage of the dollar is 58.4%. However, because of the dollar's rise, this figure is misleading. A recent value of 55% at constant exchange rates was provided by the IMF.
The yen's percentage rises to 5.7%, while the Chinese yuan's (2.3%) portion stays negligible in comparison to the Asian superpower's economic might.
The European Central Bank (ECB) cautions that managing foreign exchange reserves is becoming more and more dependent on geopolitical risk. She draws attention to a recent HSBC poll conducted among 91 central banks, which accounts for 65% of the world's foreign exchange reserves, in this regard. "Geopolitical escalation" seems to be the primary element influencing reserves' composition.
In its report, the European Central Bank (ECB) also draws attention to a study conducted in June 2023 by the Official Forum of Monetary and Financial Institutions, which found that about 40% of central banks want to raise their yuan reserves over the course of the next ten years.
Either way, the metal that is rising right now is gold. The level of purchases is record high. Currently, the yellow metal accounts for about 20% of total foreign exchange reserves. In 2023, central banks bought over a thousand tonnes of gold.
"Other central banks are encouraged to buy more and more gold by the Fed's and the ECB's money printing (QE)."
- Bitcoin will be in reserve when?
Bhutan and El Salvador are two minor nations that now use bitcoin as a reserve currency. For instance, El Salvador has over 5,000.
Furthermore, several nations own substantial amounts after seizures. There are an estimated 565,000 bitcoins owned by other nations, including China, Bulgaria, the United States, and others. which yet amounts to forty billion dollars. or 0.34% of the world's reserves of foreign currency.
We might even venture to claim that every bitcoin serves as a reserve of foreign currency. This is thus because when a nation's residents make an overseas purchase, its reserves are depleted. Bitcoin is a possible reserve currency in this sense. Having a valuation of $1,250 billion, 10% of the world's foreign exchange reserves are held by bitcoin!
Bitcoin is a payment network that facilitates massive payments as well. In 2023, the total value of bitcoin transactions was estimated to be $1,000 billion. In contrast, Visa and Mastercard handle $9,000 billion in transactions annually.
When it comes to differentiating itself from the fragmented payment systems, Bitcoin has many advantages. It is intended to become the standard worldwide currency since it is uncensorable, stateless, and an absolute store of value.