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It’s a currency that’s well known worldwide, and today the US dollar stands as the most dominant currency when it comes to allocated world reserves. The dollar’s status as a global currency means it’s widely accepted and preferred for use when it comes to trade and international transactions.

According to recent findings by the International Monetary Fund (IMF), the US dollar amounts to 61.82% of all known central bank foreign exchange reserves. Such prevalence underlines the dollar’s status as the world’s favored currency and highlights its relevance on a global scale.

The pie chart above by the IMF shows a clear representation of the vast percentage of USD allocated in reserves in comparison to other currencies.

The next closest world reserve currency is the euro at 20.24%. The strength of the US economy is what supports the value of the US dollar, making it the most powerful currency, despite the massive budget deficit.

Unlike any other unit of finance, massive amounts of USD is used outside of the United States as hard currency in day-to-day transactions, especially in Latin America. Subsequently, the international reach of the dollar is much more extensive than other currencies, which makes it something of an omnipresent force when it comes to transactions.

Source: Statista

However, in a world driven by evolving technology and ever-increasing levels of interconnectivity, could the US dollar’s position as a dominant global currency be under threat? Over the past decade, Bitcoin and other ambitious cryptocurrency projects have increased in popularity on an exponential scale. Could a digital currency ever steal the dollar’s throne and position itself as the world’s favored reserve currency?

De-dollarization may not seem so unlikely over the coming years.

The development of blockchain technology has paved the way for newer, more trustworthy ways in which money and valuable information like identity, personal data and ownership records can be stored. Blockchain offers decentralization, providing a reliable and permanent way of recording information.

Blockchain also brings more control for organizations and even governments when it comes to conducting transactions without the need for operating via central banks, as is commonplace today. While the US dollar is printed and controlled by the government of the United States, cryptocurrencies bypass such levels of centralized control.

The decentralized nature of blockchain-based cryptocurrencies means that digital finance is simple to buy and sell today, and in the future, such financial systems could even go further in displacing traditional forms of central banks and banking as we see it today.

It’s a long road towards de-dollarization, but given the potential of cryptocurrencies and the levels of security that blockchain delivers, we could soon be in the process of utilizing digital finance as a secure global currency.

There’re currently almost 18,000,000 Bitcoins in circulation. Source: Blockchain.com

World governments even have the potential to introduce their own cryptocurrencies as a secure alternative to the US dollar, which could accelerate the process of de-dollarization.

The viability of cryptocurrencies as a strong substitute for the dollar is only boosted by the emergence of stablecoins, a term for fixed price digital finance that’s kept anchored by a reserve asset.

Image showing five biggest stablecoins. Note that the price of the coin is more or less equivalent to the USD. Source: Cryptoslate

Bitcoin may still rule the roost as far as the crypto game is concerned, but it could be looking over its shoulder as stablecoins like Facebook’s Libra enter the market over the coming months. Furthermore, other stablecoins like Pax, EOSDT and TMV are likely to have a positive impact on the market and offer plenty of opportunities for diversification to investors.

Increased efficiency

Cryptocurrencies also have the potential to offer a faster way of doing business internationally. Currently, the majority of international transactions go through the Society for Worldwide Interbank Financial Telecommunications (SWIFT). Anti-dollar rebellion countries such as Russia and China have developed their own versions of SWIFT, urging trading partners to ditch the traditional system. However, even through the use of banks, a transaction can take a long time to process and transaction fees can be relatively high.

Using cryptocurrencies and completing transactions online means transfers take seconds to process with a heavily reduced transaction fee – thanks to the lack of a centralized middle man or organization. Financially, dealing in cryptocurrencies can work out more beneficial for all parties.

As we move into the next decade, it’s reasonable to expect the introduction of new cryptocurrencies issued by governments that will soon challenge the dominance of the US dollar. As we have explored, cryptocurrencies offer a quicker, more decentralized way of working that can hold appeal for governments, traders and citizens alike.

It’s worth noting, however, that a new era of crypto-dominance will bring a prolonged period of uncertainty. For as long as the world economy has known, the dollar has been the prevalent currency. It can also be circulated and used as a form of hard cash.

Cryptocurrency, of course, is very different and is not physical in character. Yes, digital finance has the potential to leverage fast-paced business deals across borders. But in the wake of a global economic downturn, it remains to be seen how reliable cryptocurrencies will be in showing us the light at the end of the tunnel. As long as the rise of blockchain continues to gather momentum, only time will tell.

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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