Coronavirus Crisis Could Propel Bitcoin to Replace the Dollar as the World’s Reserve Currency

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The Federal Reserve Board announced Tuesday the establishment of a Commercial Paper Funding Facility (CPFF) to support the flow of credit to small businesses and households. With further volatility expected in the traditional markets due to Coronavirus fears, it could provide the right opportunity for Bitcoin to step in on the dominance of the American dollar as the world’s reserve currency.

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Businesses are facing an acute shortage of working capital and industries potentially staring at bankruptcy and central banks across the globe have begun easing interest rates. This has sparked fears of fresh currency entering the market, similar to what happened during the global financial crisis of 2008.

Coronavirus Fears Spark Printing of Fresh Currency

In the aftermath of the 2008 economic crisis, the UK recapitalization model pioneered by then British Prime Minister Gordon Brown became the European standard and was adopted by other Eurozone central banks. The total package cost an estimated $2 trillion for all EU states. It is widely known that European central banks funded bailouts of most banks by issuing fresh currency.

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If another economic slowdown takes place due to the Coronavirus pandemic in the near future, it is highly possible that central banks will once again issue a new currency. This, in turn, will naturally result in the rapid devaluation of their respective currencies.

Bitcoin, on the other hand, is scarce and has a fixed supply of 21 million with a predetermined inflation rate, which completely eliminates the possibility of devaluation. As the forex market becomes highly volatile, many countries will likely experience widespread unrest, some of which could affect the equity and bond markets as well. Ultimately, this will affect international trade and other global payment settlements between vendors. The latest financial slowdown presents an excellent opportunity for the digital currency to replace the American dollar as the world’s reserve and dominant currency.

In the interim, however, the Federal Reserve could improve transparency and maintain trust with the masses by using blockchain technology for the trading of bonds and commercial papers.

Central Banks Take Drastic Steps to Ease Cash Crunch

In the wake of the Coronavirus pandemic, the U.S. Federal Reserve has announced a string of measures to build public confidence and reiterate its support for businesses over the past week. On March 15, 2020, it announced a 100 basis points rate cut, bringing its benchmark interest rate to a range of 0-0.25 percent. The Fed also announced an additional purchase of $700 billion worth of assets to support the credit market.

On Monday, the airline industry notified the American government that it would need a cash aid of $50 billion to survive by the end of this May.

The ECB and other Central banks have also announced rate cuts and other fiscal stimulus measures to avoid further slowdown of economic activity. Without the timely intervention of central banks, many fear that the sharp selloff witnessed across equity and bond markets could turn into a full-blown economic crisis and plunge global markets into another recession.

Announcing the CPFF, the U.S. Federal Reserve stated that commercial papers constituted a majority of funding for auto and housing loans alongside financing and supporting a wide range of economic activities. The Federal Reserve expects stress in the sector and has guaranteed sufficient credit to avoid any financial disaster in the coming weeks.

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Rahul is an India-based Digital Marketer who became attracted to Bitcoin and blockchain technology in 2014. Ever since, he's been an active member of the community. Other than that, he is a die-hard gamer. This gadget freak is well renowned in his circle for binge-watching Game of Thrones.

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