WHY CENTRAL BANKS WILL HOLD BITCOIN?
Central banks hold reserves of foreign currencies to stabilize their own currency's exchange rate and to be able to make international payments.
Central banks hold reserves of foreign currencies to stabilize their own currency's exchange rate and to be able to make international payments. Some experts believe that central banks could choose to hold Bitcoin and other cryptocurrencies as part of their foreign exchange reserves because they offer some potential advantages over traditional fiat currencies. central banks might consider holding Bitcoin is that it is a highly liquid and widely recognized asset. This means that it can be easily bought and sold on exchanges, and it has a well-established value that is relatively stable over time.
Another potential advantage of Bitcoin is that it is decentralized and not controlled by any single government or institution. This could make it a more stable store of value compared to fiat currencies, which are often subject to inflation due to central bank monetary policy.
Additionally, Bitcoin and other cryptocurrencies have the potential to reduce transaction costs and increase the speed of cross-border payments, which could be appealing to central banks.
Overall, while it is still uncertain whether central banks will adopt Bitcoin and other cryptocurrencies as part of their reserves, it is possible that they may see the potential benefits of holding these assets in the future.
WHY IT IS DANGEROUS TO HOLD DOLLARS ON THE BALANCE SHEET?
a.) As per IMF data, around $6.4 trillion of foreign central banks' assets are held in dollars. This is a massive risk to their financial stability, as this amount is getting devalued by (10–15) % on a yearly basis.
b.)That’s the reason these countries have seen rampant inflation over the past year. The USA does something called "exported inflation," in which it takes all the valuable goods from other countries and sends them dollars, which get devalued every year. The foreign central banks hold dollars because they are used for buying oil and other goods.
c.)The US has taken advantage of this by printing trillions of fake dollars. It has also used its power by sanctioning other countries and freezing their assets.
d.) The latest example is Russia, where the US seized more than $300 billion worth of Russian central bank assets. The US also seized the assets of over 1000s of Russia's wealthiest individuals.
e.)Russia is the 9 th largest economy in the world, and its assets getting seized was a red flag for other central banks.
HOW CENTRAL BANKS ARE EXITING DOLLARS?
In the past one year alone, central banks around the world have decreased their holding in dollars by $1.5 trillion. This trend will continue as more and more countries will wake up to this fact that their assets in dollars are no longer safe.
This is the same reason central banks are accumulating gold from the last 10 years and this process has accelerated in the last 2 years. Saudi has agreed to sell its oil in Yuan which will further deteriorate dollar dominance. BRICS which consists of Brazil, Russia, India, China and South Africa have agreed to do trades using their own currency. Russia which is the 3 rd largest producer of oil will sell its oil in Yuan or rubles. All of these will lead to deterioration of dollar hegemony.
Bitcoin is still in its nascent stage. It turned 14, on 3 rd Jan 2023 which is considered as a teenager. But the monetary policy and network growth of Bitcoin make it the superior money and it’s just a matter of time before governments and central banks wake up to this realization.