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Could the US dollar lose its status as the global reserve currency? BitMEX co-founder Arthur Hayes doesn’t rule out the possibility and believes it’s a question worth considering for those looking to preserve their wealth.
The former exchange CEO published an essay on Thursday exploring the economics and role of the dollar worldwide, and how its shrinking role could affect global crypto adoption.
US Dollar Dominance and Decline
In the essay titled “Exit Liquidity,” Hayes explained that the dollar’s dominance worldwide is propped up by the United States’ open capital account and devotion to free trade. Each creates additional demand for the dollar, as the former allows Asian countries to purchase American assets with USD, and the latter lets Americans purchase cheap Asian products.
However, being the issuer of the global reserve currency also means that the US Federal Reserve and US Treasury are responsible for keeping the global economy intact. In other words, when the global economy demands more USD, the US must provide it – even if it stokes inflationary pressure on the domestic economy.
“Trillions of dollars of Asia’s wealth also depend on the good graces of American politicians,” wrote Hayes. “As Russia recently found out, rule of law and property rights are not ironclad.”
In the past few months, several global corridors of trade have signaled interest in moving away from settling trade in dollars. For example, Chinese and French energy companies agreed last month to settle a liquified natural gas deal in CNY rather than USD. Brazil and China have also struck a deal to trade using their national currencies, rather than the dollar.
As Hayes explained, being so heavily dependent on the dollar means countries like China must import the United States’ monetary policy, and also be subject to its political risk.
While the United States has long been viewed as a reliable and politically stable nation, the co-founder claims this has changed in light of former President Donald Trump’s arrest earlier this month. As it happens, Trump predicted that the US dollar would lose its global dominance shortly after his bail release.
The Future of Global Currency
Hayes predicted that the future will feature multiple currency blocs, but no currency “hegemon” like the US dollar today. Imbalances between the blocs will be settled in a “neutral reserve currency” like gold and crypto, which are “not tied to any particular country”
“As Bitcoin continues to prove it is the hardest money ever created, I expect that more and more countries will at least start to consider whether it is a suitable savings vehicle alongside gold,” he continued.
Hayes also connected the threat of the dollar’s weakening role on the global stage to the Biden Administration’s crackdown against crypto companies. “The West is making it harder to buy crypto and store it in a private wallet,” he added.
Since the collapse of FTX, many politicians from America’s political left have become extra-skeptical of crypto, with some questioning whether the asset class even belongs in the country.