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How the Collapse of the U.S. Dollar Could Fuel a Cryptocurrency Revolution

And how that very revolution could further impact the collapse of the dollar

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The United States dollar has been the world's dominant reserve currency for the last sixty years, with many countries holding vast amounts of American dollars in their foreign exchange reserves. More recently we’ve seen a growing concern over the stability and longevity of the U.S. dollar, and some experts are predicting a possible de-dollarization of the global economy. Should this happen, there will be significant implications for Americans, both in terms of personal finances and our position on the world stage.

De-Dollarization…What is it?

Let’s back up a minute and talk about what ‘de-dollarization’ means. De-dollarization is the process by which countries reduce or eliminate their dependency on the United States dollar and make a shift towards other currencies or assets. In effect, other countries stop using the U.S. dollar in global business. This could be driven by a number of factors, including geopolitical tensions, economic instability and/or the rise of alternative currencies such as cryptocurrencies.

For Americans, a de-dollarization of the global economy would have impactful consequences. Here are a few implications of what could happen if the U.S. dollar is no longer the leading global currency.

  • Higher Import Prices: If the dollar loses its appeal and countries shift toward other currencies, the cost of imports to the United States would rise, maybe even skyrocket, due to foreign suppliers raising their rates to make up for the weaker American dollar.
  • Reduced Access to International Markets: If the U.S. dollar is no longer the main or more preferred currency in global trading and finance, it will likely be harder for American companies to do business overseas. This could result in a shortage of products, equipment, and services here in the United States. That in turn means higher prices and fewer choices for American consumers.
  • Volatility in Foreign Exchange Markets:

    Many foreign currencies and prices could become unpredictable. This would result in much higher costs for everyday items for consumers like clothes and food.

  • U.S. Businesses Impacted:

    De-dollarization could result in significantly less demand for American products and services and our American companies could struggle to keep afloat, subsequently creating loss of jobs.

  • Interest Rate Hikes and a Rise in National Debt:

    A a de-dollarization of the global economy could also have implications for the U.S. government's ability to finance its debt. As the U.S. dollar loses its dominant position, it could become difficult for the government to borrow money from foreign investors, which could lead to higher interest rates and further increases in the national debt.

The average American could face reduced purchase power. If your dollar doesn’t go very far or buy as much as it used to, we could see significant hardships on Americans and their lifestyles. Inflation may get worse. Investment opportunities could be missed. Savings accounts could dwindle.

Crypto Vs. Central Banks

The general sentiment among those who support cryptocurrency is typically that central banking systems are flawed. In the case of the U.S. banking system, the dollar or more accurately, the value of the dollar, is tied directly to volatile markets, interest rates and government policy. The value of cryptocurrency, however, is the opposite. Cryptocurrency value is determined by market demand.

Unlike traditional currency, cryptocurrencies are decentralized, meaning they are not backed by any government or financial institution. Cryptocurrency is a digital or virtual currency that uses cryptography to secure and verify transactions and to control how much more ‘coins’ or digital currency is made.

One of the key differences between cryptocurrency and traditional currency is that cryptocurrencies operate on a decentralized ledger called a blockchain. This means that all transactions are recorded on a public ledger that is maintained by a network of computers around the world. This ensures that transactions are transparent, secure, and cannot be tampered with or reversed.

Despite their differences from traditional currency, cryptocurrencies are becoming increasingly popular as a means of payment and investment. Many businesses are beginning to accept cryptocurrencies as a form of payment, and investors are increasingly turning to cryptocurrencies as a way to diversify their portfolios.

Of course, there are also risks associated with cryptocurrencies. They are not yet widely accepted as a form of payment, and their value can be highly volatile. This makes them a risky investment for those who are not familiar with the technology. So, education is always imperative when debating on cryptocurrency investments.

The global economy is heavily dependent on the US dollar as the primary currency for international trade and transactions. However, recent geopolitical tensions and economic uncertainties have led to discussions around de-dollarization or reducing the dominance of the US dollar in the global markets. If de-dollarization were to occur, it could have significant implications for the global financial system. One potential solution to this problem could be the increased use of cryptocurrencies.

Because cryptocurrency is not backed by any central bank, financial institution, or government, it could be a viable, alternate currency for overseas, international trade and cross-border transactions if the U.S. dollar were to lose its status as the dominant currency for international trade.

Another example of the advantage of cryptocurrencies is that they are not subject to the same regulatory oversight as traditional currency. This means that they can be used to bypass traditional banking systems and avoid the fees and restrictions associated with international transactions.

For example, if a business in China wants to pay a supplier in Brazil, they would typically need to go through a bank or financial institution to convert their currency into U.S. dollars and then into Brazilian currency. This process can be time-consuming, expensive, and subject to currency fluctuations. However, if both parties were to use a cryptocurrency like Bitcoin, they could bypass the traditional banking system and complete the transaction more quickly and cheaply.

Think of what this could mean if the U.S. dollar tanks as the global currency leader. The U.S. dollar may not have strong purchase power if that happens but crypto like Bitcoin could be a preferred and stronger method of financial transactions for countries to do business in.

The Flip-Side of the Coin

A bigger question perhaps is, could cryptocurrency like Bitcoin actually play a role in reducing the dominance and power of the U.S. dollar in the global financial system? If the wheels were already set in motion and the de-dollarization was happening, the power and demand of cryptocurrency alone could further plummet the stability of U.S. currency simply for being a ready alternative. Cryptocurrency could provide a more stable and reliable alternative to the US dollar.

It’s the Creator-Destroyer paradox, in a sense. If the dollar collapses, it might create or stimulate the rise of crypto as a global currency, and in turn, that rise would spell the end for the power of the U.S. dollar globally.

Cryptocurrencies have the potential to be a valuable solution if de-dollarization were to occur in the global markets. They offer a secure, decentralized, and potentially stable alternative to traditional currency, which could help to reduce the dominance of the US dollar and promote greater global economic stability. As cryptocurrencies continue to gain in popularity and acceptance, they could become an increasingly important part of the global financial system.

Original publish date: June 14, 2023

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