Speaking to the United States Congress, the Chairman of the Federal Reserve, Jerome Powell, described Bitcoin as a store of value, “like digital gold.” He also acknowledged that it could replace the need for a currency reserve.
This statement came in response to a question from the Senate Banking Committee. Its chairman asked Powell if a globally prevalent cryptocurrency would diminish or remove the need for a reserve currency in the traditional sense.
Powell responded that such things are possible, but that we have yet to see them. He used Bitcoin as an example, stating that it’s hardly ever used for payments, functioning predominantly as a store of value. Like gold, he added, Bitcoin is also a speculative store of value.
In what marks one of cryptocurrency’s most legitimizing moments, Powell then added:
“People have been talking about this since cryptocurrencies emerged, but we haven’t seen it. But that’s not to say we won’t see it. And if we do see it, yes, you could see a return to an era in the United States where we had many different currencies in the so-called National Banking Era.”
Bitcoin Replacing USD as De Facto Reserve Currency
Sociologists often use conflict situations as case studies to indicate what human behavior would likely look like should such systemic breakdowns become widespread. Likewise, thanks to cryptocurrencies, economists and laypeople can glimpse a world where the US dollar as widespread reserve loses out on the top spot.
The question asked of Powell by the Senate Banking Committee is not futuristic — simply a matter of scale. We’ve seen this play out in Venezuela and Zimbabwe as part of larger complex economic phenomena.
In both countries, the breakdown of national economies resulted in currency crashes. Zimbabweans became trillionaires overnight. While the dollar is usually quick to step down from reserve to utility currency, Bitcoin has been changing that game. Venezuela, recognizing a sinking ship, was quick to launch the Petro – the country’s in-house ‘cryptocurrency.’
Zimbabwe banned Bitcoin. That hasn’t stopped it from being used, thanks to peer-to-peer trading, as a utility currency. Significantly, it’s often deemed easier to afford, access, and use than USD. Weeks after, the government banned the US Dollar and other currencies as legal tender on June 24 in favor of reintroducing the local RTGS Dollar. This comes a decade after it first crashed and the economy dollarized. In response, local Bitcoin prices have soared once more.
The US Dollar as Reserve Currency
The US dollar (USD) is the United States’ best export. It’s the world’s most popular reserve currency, especially as an anchor currency used by governments and institutions around the world as a foreign exchange reserve. Also called a safe haven currency, it’s largely used for international transactions and investments, including import-exports.
Its status as the globally leading reserve currency allows the USA to borrow USD at a lower rate. This has led to an enormous debt ceiling. In turn, this necessitates doing what it takes to keep the dollar in position as the world’s leading currency.
The USD, therefore, requires powerful backing (such as its capacious military-industrial complex) to keep itself afloat. It also yields tremendous power, possessing over the ability to impose sanctions against other countries it is directly or indirectly economically involved with.
If the USA is the globe’s hottest national franchise, the dollar sign is the golden arch that determines brand value.
Powell’s Acknowledgement of Bitcoin
Just over ten years ago, Bitcoin was nothing more than a white paper concept. Today, cryptocurrencies are recognized as a viable threat. A threat that is so considerable that it’s able to do away, even if only theoretically at this point, with the reigning reserve currency system ruled over by the US dollar.
This out of the mouth of the highest echelons of the largest federal reserve agency on earth shows just how far the cryptocurrency industry has come in a blip of time. It also speaks volumes about traditional economists’ and governmental naysayers, and how much of a threat it poses to existing socioeconomic power structures.
What are your thoughts on the significance of Powell’s statement? Let us know your thoughts in the comments below.
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