06/17 update below. This post was originally published on June 15
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The bitcoin price has just had a $4 trillion “watershed moment,” while ethereum, XRP and other major coins are braced for a Wall Street bombshell.
Now, after the Federal Reserve quietly admitted gold is replacing the U.S. dollar, the International Monetary Fund (IMF) has warned of a “striking” decline in the U.S. dollar’s share of allocated foreign reserves of central banks and governments.
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The U.S. dollar is suffering “stealth erosion,” according to the International Monetary Fund (IMF) … [+]
“Strikingly, the reduced role of the U.S. dollar over the last two decades has not been matched by increases in the shares of the other ‘big four’ currencies—the euro, yen, and pound,” IMF economists Serkan Arslanalp, Barry Eichengreen and Chima Simpson-Bell wrote in a report.
“Rather, it has been accompanied by a rise in the share of what we have called nontraditional reserve currencies, including the Australian dollar, Canadian dollar, Chinese renminbi, South Korean won, Singaporean dollar, and the Nordic currencies,” they wrote, pointing to “new digital financial technologies such as automatic market-making and automated liquidity management systems,” as powering that shift.
“This recent trend is all the more striking given the dollar’s strength, which indicates that private investors have moved into dollar-denominated assets,” the economists added.
06/17 update: Former speaker of the House Paul Ryan, who now serves on the policy council of crypto-focused venture capital company Paradigm, has urged U.S. lawmakers to create a “sound, predictable regulatory framework for stablecoins” in a Wall Street Journal op-ed.
Ryan reckons dollar-backed stablecoins could “stave off a U.S. debt crisis and help the U.S. keep up with China.”
Dollar-pegged stablecoins, such as Tether’s USDT
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“The U.S. can’t afford to sit idly as its largest international competitor taps latent demand for safe and convenient digital money,” Ryan wrote, pointing to China and Saudi Arabia, who are “increasingly looking for options for settling payments outside the dollar system.”
A number of stablecoin bills have been introduced to Congress over the last few years but progress on the legislation has ground to a halt. The recent swing toward bitcoin and crypto by former president and 2024 White House hopeful Donald Trump has, however, thrust crypto policy back to the top of the political agenda.
Earlier this month, the Federal Reserve Bank of New York wrote a report outlining the narratives around “declining dollar shares in official reserves, and increasing roles for gold holdings by central banks,” which it says has been “inappropriately” generalized beyond “the actions of a small group of countries.”
However, some commentators disagreed with the New York Fed’s appraisal of the situation.
“The Fed now admits some countries are moving to gold,” tech investor and former Coinbase chief technology officer Balaji Srinivasan posted to X, pointing to what the Fed says is a “small group” that “represents 3 billion people. So 37.5% of the world is moving away from dollars towards gold.”
Former billionaire and All In podcast “bestie” Chamath Palihapitiya predicted bitcoin could “completely replace gold” as countries adopt it—potentially pushing it’s market capitalization toward gold’s $15.7 trillion.
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The bitcoin price has surged this year, with the Federal Reserve priming bitcoin, ethereum, XRP and … [+]
Meanwhile, independent 2024 U.S. presidential rival to Joe Biden and Donald Trump, Robert F. Kennedy Jr. (RFK Jr), has warned the only way to save the dollar is with bitcoin.
The U.S. dollar decline comes as the Federal Reserve is gearing up to cut interest rates after a two-year war on inflation in the aftermath of historical Covid-era stimulus and money printing.
“Central banks around the world have already started to cut rates, which suggests a broader trend towards monetary easing,” analysts at the Bitfinex bitcoin and crypto exchange wrote in emailed comments.
Fed chair Jerome Powell this week indicated the Fed will cut rates at least once this year after the European Central Bank (ECB) moved to lower interests rates in the Eurozone earlier this month.
“It seems clear that the Bank of England and the Federal Reserve will follow suit in the coming months,” the Bitfinex analysts added. “The global liquidity cycle indicates that money supply is likely to increase, which can support asset prices, including cryptocurrencies.”
