Bitcoin as a global reserve asset? A brief look….

Is the dollar’s global reserve asset status threatened? Although commonly discussed in bitcoin circles, the topic grabs general attention in and around BRICS summits, the latest having been held in late October in Russia. The BRICS discussion that seems to get the most attention is the possibility of a BRICS currency, overtly intended to lower US dollar dominance – and hence Washington’s ability to weaponize those dollars against member states (I use “dollar” for brevity, which includes Treasuries and other dollar denominated assets). Is a BRICS currency a reasonable possibility, and what would that mean for Bitcoin?

The case for the gradual decline of the use of the dollar as a global reserve asset is strong (note this is not the same as the dollar’s use as a global reserve currency). A brief snapshot of the world during the early acts of the post-war US-led global financial system reveals how US dominance at that time was inevitable. In 1960, US global share of GDP was 40%; today it is 24%. In 1960, the United Nations had 99 members; today that number stands at 193. In 1960, many countries had yet to fully recover from WWII, a war that left US infrastructure essentially undamaged and primed manufacturing. In short, the world has changed…a lot.

In addition, a 1,000% increase in the US’ use of sanctions since 9/11 makes it reasonable to believe countries that see themselves as potential targets would seek to derisk. There is obviously more to it, but it’s easy to see how the US-led order emerged and how those circumstances have changed. So, will there be a BRICS currency as a result? I don’t think so.

If BRICS countries are united in their desire to see an alternative to the US-led system emerge, there are also numerous bilateral challenges among members that leave their willingness to tie their monetary futures together a la the euro in doubt. A brief tour:

China and India
A recent agreement to lower tensions in disputed areas reveals concerns that long-simmering territorial disputes risk escalation. Both countries control territory claimed by the other, and these disputes have been occasionally violent over the past several years. Additionally, a quick look at a map will reveal how China’s construction of ports in Pakistan (India’s historic adversary) and Sri Lanka (India’s perceived sphere of influence) could easily create the feeling of encirclement.

Egypt and Ethiopia
The Nile River is core to Egypt’s cultural and economic identity. While the river is typically associated with Egypt, it roots run deep into central Africa, flowing north from Khartoum where the White Nile and Blue Nile join. Some 350 miles south of Khartoum, Ethiopia constructed the Grand Ethiopia Renaissance Dam, the primary purpose of which was to address Ethiopia’s acute energy shortages. Dependent on the Nile River for survival, Egypt views this dam, with its ability to control the flow of Nile waters north, as an existential risk to its security. Ethiopia views construction of the dam as well within its rights and crucial for its development. In short, a very difficult dispute to solve.

UAE/Egypt and Iran
The tensions between these countries are well known. The most recent manifestation of colliding regional interests is Yemen. The UAE and Saudi Arabia fought a failed multi-year war attempting to prevent a Huthi takeover of Yemen, a group that remains dependent on Iran’s patronage. The war included Huthi drone and missiles strikes in UAE territory. Today, Huthi attacks against international shipping have restricted maritime traffic in the Red Sea and through the Suez Canal, costing already economically strapped Egypt some $6 billion in lost revenue. 

China and Russia
It is doubtful that Russia could persist in its invasion of Ukraine were it not for China’s support. One might suggest that Russia’s ability to prosecute this war is nearly dependent on that support. While that dynamic serves Russia’s interests today, a client/patron relationship with China is almost certainly not on Russia’s list of desired outcomes. The two countries share a 2,600-mile border that snakes toward regions both would like to see as part of their sphere of influence. This is also a border that nurtured tensions that provoked China’s desire for rapprochement with the US in the early 1970s. The two currently share interests. Interests evolve.

None of the issues I describe, as well as many others unmentioned, prevent BRICS countries from building trade ties, introducing favorable banking reforms that would simplify transacting in their own national currencies, and even collaborating on political issues of common interest. But on monetary matters, will China or the UAE want to subsidize the purchasing power of poorer members? Will smaller members be comfortable swapping subordination to a dollar system for another system with different dominant players of unknown reliability? There are a lot of unknowns, but I’m confident that the answer to both questions is “no.” 

So back to the question, Bitcoin as a global reserve asset? It’s not hard to get to “yes.” I think the dollar system will remain resilient. But for countries (BRICS members or not) looking for a truly neutral asset, one with increasing purchasing power, that they can unilaterally hold and use at their will, Bitcoin’s attractiveness only has room to grow.

#bitcoin #brics #reserveasset  nostr:npub1sk7mtp67zy7uex2f3dr5vdjynzpwu9dpc7q4f2c8cpjmguee6eeq56jraw