Reserve currencies have existed in some form or another for centuries. As cryptocurrencies rise in popularity, is it possible that they may become the new reserve currency? First, let's look at what a reserve currency is.
A reserve currency is a single currency that is held by nations and institutions in large quantities for the purpose of investments, trade, and international debt obligations. The purpose of having a reserve currency is really to make life easier for international trade.
For example, for the most part, each country has their own form of money, and all of this money has different values. This can make trading difficult, as no institution or country wants to trade a good for something that is worth than that good. Having a single set reserve currency to trade in makes this less of a problem.
Throughout history, there have been many different examples of reserve currencies as different nations have risen and fallen from world dominance. On of the first examples of a reserve currency was the Greek drachma which came to prevalence in the fifth century B.C. The Romans, French, and Dutch have also had times when their currency were the standard.
For more than century prior to WWII the reserve currency of the world was the British Pound Sterling, As the British expanded an empire across the globe, it was the pound that was the standard for trade.
Since the Bretton Woods Agreement of 1944 and the emergence of the United States as a super power, it has been the US dollar that has been the world's reserve currency, For decades, countries have relied on the strong and stable dollar for setting prices on goods such as oil.
As times change, there is more speculation about how much longer the dollar will remain the reserve currency of the globe. And naturally, more speculation about what will replace it if it does fall from its current spot on top.
One possible contender to replace the dollar is Bitcoin. As cryptocurrencies continue to gain traction with people and cement their use in economies across the globe, many are wonder if a cryptocurrency, like Bitcoin, could replace traditional currencies as the reserve.
Many are arguing the benefits of replacing the reserve currency with a crypto. For instance cryptocurrencies are not held by any nation in particular. This means nations would not have to rely on the stability of any one country to make sure prices remain stable. Worries about political turmoil could become a thing of the past.
Also, the main benefit of cryptocurrencies is how quick and easy they are to trade. Quicker trade time have many benefits, including allowing for more transactions to take place. All things that could make a global economy that runs quicker and more efficiently.
Finally, cryptocurrencies like Bitcoin are starting to be considered a safer alternative to national currencies. They would not be affected by things like economic down turns, or the instability of stock markets. Also, Bitcoin is protected by encryption, arguably making it harder to hack into by forces that wish to do harm.
Bottom line. what we as people have used for money has consistently changed throughout history, and if a new currency type offers benefits over the current one, it may change again.