Here’s our keyword for the day: US dollar collapse! This bold statement seems to be flying around the media like an imminent threat. It’s currently “the” topic of conversation in every podcast, every tweet and every Substack article censored by Elon. On the opposite side, China and Russia and their allies are embracing this US dollar collapse conversation with wide open arms. Now, while the BRICS countries are supposedly developing their own currency, this unborn currency has a long road ahead. In this article, we will go over some of the big reasons why the US dollar will not bow down to Chinese Yuan or even Bitcoin. At least not as easy as the media says!
World Superpower by 2032 (Probably)
Ironically, you can find thousands of podcast clips on YouTube where you see former CIA spies explain how and why China will be the top superpower by a decade or something. Of course, they’re very careful with their words and use a lot of “if” and “possibly” and “probably” in their discourse. Of course, we are assuming that this former CIA agent used to be a geopolitical expert in CIA and not just a field agent (sarcasm). Regardless, everyone is talking about how the US economy is about to collapse. Subsequently, the ruthless wave of suggested posts and videos about this topic made me angry last week. So here we are, swimming against the current mostly because it tickles my ego to be the opposing side in every conversation.
Bitcoin Will Kill Fiat (Probably Not)
On top of that, it’s also critical to talk about cryptocurrencies and whether they will be replacing the US dollar. This one has been a long time coming! Thousands of crypto bros talking about the upcoming US dollar collapse and how Bitcoin will be the next world reserve currency. Once again, all the video suggestions on YouTube where you have a random guy telling me that Bitcoin will be $1,000,000 by 2024 annoyed me beyond belief.
Ironically, the Bitcoin maximalist community isn’t concerned at all with their terminology. They are certain about their predictions and value their vision just like the Manson family did! Of course, this article will address Bitcoin and its future implications in detail. But before we do that, let’s just say that altcoins will always be alternative coins to Bitcoin and that’s just what they are forever! So no! I am not interested in your upcoming altcoin airdrop!
At this point, it is worth mentioning that the sole purpose of this article is to address the US dollar collapse topic which does not include a defense for US foreign or domestic policies.
The US Dollar Collapse (Unlikely)
To address this topic, there are countless factors to consider and thousands of unexpected event that can (possibly) happen. However, there are five primary points to consider before making the final judgement.
China’s Bond Market
When it comes to China, although the Chinese economy has grown significantly in recent years, its bond market is still relatively smaller and less developed compared to established reserve currencies like the US dollar, euro, and Japanese yen. According to data from the Bank for International Settlements (BIS), as of 2021, the Chinese yuan (CNY) accounted for only around 2% of global foreign exchange reserves, while the US dollar (USD) remained the dominant reserve currency with a share of around 59%. The Chinese bond market also lacks liquidity and transparency compared to more mature markets, which can affect its attractiveness as a reserve currency.
Additionally, various factors such as government intervention, capital controls, and regulatory restrictions in China’s financial markets may also impact the development and internationalization of its bond market, which in turn can affect its potential as a reserve currency. Ultimately, the Chinese bond market does not bring about a lot of investor confidence.
Capital Controls in China
Capital controls refer to restrictions imposed by a government on the movement of funds in and out of a country. In the case of a currency aspiring to be a reserve currency, it is important to have minimal or no capital controls to facilitate free movement of capital across borders. Capital controls can limit the liquidity and flexibility of a currency in international transactions, which can impact its attractiveness as a reserve currency.
China has been known for implementing capital controls to manage its economy and financial system. These controls can include limits on the amount of capital that can be transferred out of the country, requirements for approval or documentation for cross-border transactions, and other measures to restrict capital flows. Such capital controls can hinder the free movement of funds and limit the liquidity of the Chinese yuan (CNY) in international markets, potentially affecting its suitability as a reserve currency.
The U.S. dollar (USD) Trade and Investment
Many countries and international companies hold substantial amounts of USD-denominated debts, including government bonds, corporate bonds, and loans. These debts are typically denominated in USD due to the historical dominance of the USD in global financial markets, and the stability and liquidity of the U.S. bond market.
According to data from the Bank for International Settlements (BIS), as of 2021, the USD continues to dominate global foreign exchange markets, accounting for around 88% of daily forex trading volume. Additionally, the BIS also reports that the USD remains the most widely used currency for international debt securities, with a significant portion of global debt issued in USD.
As a result, countries and international companies that have accumulated trillions of dollars in USD-denominated debts will likely need USD for the foreseeable future to service and repay these debts. This ongoing demand for USD to settle international debts is one of the factors that support the continued use and demand for the USD in global financial markets.
BRICS is Not Robust!
Trust is a crucial factor in the international monetary system, particularly for a currency to become a reserve currency. A reserve currency is a currency that is held by central banks and other international institutions as part of their foreign exchange reserves and is widely used in global trade and finance.
The BRICS (Brazil, Russia, India, China, and South Africa) are a group of emerging economies that pose as potential challengers to the dominance of traditional reserve currencies like the U.S. dollar. However, despite their economic potential, the BRICS countries face challenges in establishing mutual trust among themselves. These challenges may include geopolitical tensions, economic disparities, and differences in monetary policies and regulations, which could affect their ability to fully trust and rely on each other’s currencies.
While the BRICS countries have made efforts to promote intra-BRICS trade and investment, the use of their currencies in international trade and finance remains relatively limited compared to traditional reserve currencies. According to data from the International Monetary Fund (IMF), as of 2021, the share of BRICS currencies in global foreign exchange reserves remains relatively small, with the U.S. dollar and the euro continuing to dominate as reserve currencies.
On the other hand, Russia, that is a critical member of the BRICS is currently facing serious challenges in Ukraine. Consequently, this has deeply affected Russia in terms of economy. As they are growing desperate, countries like China are taking advantage of the sanctions imposed on Russia. For instance, China’s import of Russian crude oil is now hitting historical levels. Simultaneously, reports indicated that Russia is selling their oil. Petrol and natural gas at huge discounts to China solely out of desperation for money. Now, you can’t necessarily consider China a proper ally if you were Putin would you?
US Dollar Collapse Will Damage Chinese Economy
China is in fact the biggest customer for the US dollar. As the world’s second-largest economy, China has a significant presence in global trade and is a major exporter. It is true that a significant portion of China’s exports is denominated in U.S. dollars. According to data from the U.S. Census Bureau, in 2020, China’s total exports to the United States amounted to over $450 billion, making the U.S. one of China’s largest export markets.
In order to facilitate international trade, many countries, including China, conduct their trade transactions in U.S. dollars. This is because the U.S. dollar is a dominant global medium of exchange and serves as the dominant currency for international trade and finance. The use of the U.S. dollar in global trade allows countries to access international markets, facilitate cross-border transactions, and conduct business with other countries.
However, it’s worth noting that while the U.S. dollar plays a significant role in China’s export-driven economy, China has also been taking steps to diversify its trade and reduce its reliance on the U.S. dollar. China has been actively promoting the use of its own currency, the Chinese yuan (CNY), in international trade and investment, and has established currency swap agreements with various countries to promote direct bilateral trade in their respective currencies. Additionally, China has been working to develop alternative payment systems and financial infrastructure to reduce its dependence on the U.S. dollar in international trade and finance.
Will Bitcoin Trigger the US Dollar Collapse?
Cryptocurrencies, including the most well-known one, Bitcoin, have gained attention as a digital form of currency that operates outside the traditional financial system and is not tied to any particular country’s currency, including the U.S. dollar. While cryptocurrencies have gained popularity and acceptance in some circles, they currently do not pose a significant threat as a direct replacement for the U.S. dollar or any other global reserve currency for several reasons.
First, cryptocurrencies are relatively new and still face significant challenges in terms of regulatory and legal frameworks, scalability, stability, and acceptance by mainstream financial institutions and governments.
Second, cryptocurrencies are volatile and price fluctuations, which can impact their suitability as a stable medium of exchange and store of value. The lack of stability and the speculative nature of cryptocurrencies pose risks for businesses and governments in terms of pricing, risk management, and financial stability.
Third, while cryptocurrencies offer certain advantages such as faster and cheaper cross-border transactions, they also come with risks, including potential for money laundering, fraud, and lack of consumer protection.
Ultimately, while cryptocurrencies have gained attention and acceptance in some circles, they currently do not pose a significant threat as a direct replacement for the U.S. dollar or any other global reserve currency. The challenges of regulatory frameworks, volatility, stability, acceptance, and risks associated with cryptocurrencies limit their potential to replace traditional currencies in global trade and finance.
On the other hand, if cryptocurrencies were to replace the US dollar, the whales and industry CEOs will have an unprecedented influence on the world’s economy and it’s really terrifying to say the least!
Will the US Dollar Collapse?
According to Murphy’s law, anything that can go wrong will go wrong. Personally speaking, I saw the murphy’s law manifest to reality last month since anything that could go wrong with a motorcycle went wrong with my motorcycle and it was in the shop for two weeks and it was really annoying and that’s probably why I got mad consuming all the content about the US dollar collapse content! The point is, unless something radical occurs, no Yuan or Bitcoin can replace the US dollar anytime soon.
Can we all agree that the United States is politically divided? If so, then we can clearly see how both sides of the political spectrum could use a strong dose of fear mongering to promote their own campaign. While it’s impossible to call the trending of “US dollar collapse” an orchestrated political hoax, most of the content out there seems to be following an unsubstantiated discourse.
