With El Salvador legalizing Bitcoin as legal tender and forward-looking companies like Tesla, MicroStrategy, and Square accepting payments in Bitcoin, the debate once again rages on whether cryptos like Bitcoin can ever replace fiat currency. According to BItstamp CEO Julian Sawyer, Bitcoin has drawbacks like extreme volatility and most likely be part of the payment methods like cards, coins, currency, or checks. It is highly unlikely that it will be the torchbearer of financial transactions. Cryptos can be affected by memes and tweets, making them highly unstable and thus not a great fit for a global or national financial system. Bitcoin has halved in value since mid-April and more than quadrupled in value last year.
Bannockburn Global Forex chief market strategist Marc Chandler says the volatile BItcoin is a dampener for financial stability for countries. When a country’s currency loses credibility in the market, goes out of control, indulges in extreme volatility, it leads to high inflation, which is why some countries peg their currency to other currencies and have a dollarized currency economy as El Salvador does. This is undoubtedly a turning point for cryptos like Bitcoin, and it is surely a moment of reckoning. Tellimer’s head of financial equity research Rahul Shah is of the view that countries like Liberia, South Sudan, Guatemala, and Haiti could be the next to legalize Bitcoin given their dependence on foreign remittance inflows, high poverty, and low financial inclusion.
Is it possible for Bitcoin to become a global reserve currency replacing the greenback as Bitcoin enthusiasts believe? On the other hand, Nouriel Roubini has predicted that it will crash and eventually die. Will it never become a medium of exchange and continue to remain a speculative asset? The US dollar continues to remain as the universal settlement currency while Bitcoin is nowhere near-universal acceptance. To understand how fiat currencies work and gain value and lose value, one should look from the ‘metallist’ theory and the ‘chartalist’ theory. Simply said, the metallist theory pegs the fiat currency to gold, and the chartalist theory says currencies are important because taxes are paid in them. Thus they define the value of fiat currencies.
Futurist Tomas Frey is of the opinion that cryptos will replace 25% of the national currencies by 2030. FIs have begun to recognize cryptos as an asset class with real value. Nordic country Sweden has just 1% fiat currency transactions, and people are happy with this. Many countries favor eliminating a national legal tender with the aim of using blockchain technology to create a CBDC. The pros of cryptos are that they have no intermediaries, offer greater security, and there is no governmental control. The cons are that the concept is foreign to the bulk of the population, there is huge volatility in prices, and there is no insurance. Yet all said and done, cryptos are the future of payments; replacing fiat currency will be difficult, and cryptos currently face a lot of challenges.
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Source: https://www.cryptonewsz.com/can-bitcoin-ever-replace-fiat-currencies/
