What Is De-Dollarization? And What Does It Mean For Crypto?

What is a dollarization
and what does it mean for crypto For all of our lives? The dollar has been
the king of currencies around the world, But it's not about to change. Analysts have been warning of the dollar's
impending doom. I don't want to be overly dramatic,
but I think it's I will use
the word doomed in the long term. Some changes are coming
even for the dominant currencies. This technology
could become less important. The currency
of international transactions. With the recent talk about dollarization. Let's explore its potential implications
on the global economy And how it may affect Bitcoin
and other cryptocurrency. If you've been on crypto Twitter at all
in the last few weeks, You've
definitely come across the dollarization. The topic is everywhere right now. For nearly 80 years
since the end of the Second World War. The US dollar has effectively been The currency of the world
for our entire lifetimes. So is the dollar going to zero? Well, today we'll discuss just that. I'm your host Trevor with CMC
and let's get started. So what is a de dollarization? Well, the easiest way to Answer this is to consult your friendly
neighborhood online encyclopedia. De – dollarization is a process
of substituting a U.S. Dollar as a currency used for trading oil
and or other commodities. So, i.e. Petrodollar and buying U.S. Dollars for the forex reserves, Bilateral trade agreements
and a dollar denominated assets. Dollarization
has become a major talking point That has made it to the mainstream news,
thanks to headlines like China, Russia Yuan Denominated
Trade hitting record highs, Yuan’s

Share of trade finance, doubling
since the start of the Ukraine war. And at China completing
the first LNG trade with France in one. You can easily spot the common denominator
here China currency, good, green Currency bad, and that's even gotten
the attention of a particular former U.S. President. China wants to change the standard,
the currency standard. And if that happens,
that's like losing a world war. So, in short, people are panicking
at the end of the dollar's dominance. Don't panic. Don't panic. But don't panic. All right. So let's unpack
whether that's actually happening. Is De – dollarization happening? If yes, how much? Here's where we have to Get into the trenches
of analyzing macroeconomic data. Good thing a couple of smart
people have already done all the work. The consensus among reputable experts
is that demonization is happening At the margin of the dollar's status
as the world's reserve currency is safe For now. Brent Donnelly, president of Spectrum
Markets, thinks a decision is not a thing. He cites three main reasons. Firstly, fear mongering about the dollar's
imminent demise has been around before And it never materialized
as badly as it sounds. Second, the dollar maintains a stable
share of global payments in volume. Thirdly, The dollar's share of foreign exchange
reserves is down from its peak volume. But the meat of that Move happened a decade ago
and isn't a problem for the U.S. Anyway. Those are some of the main themes that
repeatedly come up about the dollarization And whether it's really happening. Michael Pettis, Carnegie Senior fellow and professor of finance,
also sees the three main reasons

Why meaningful dollarization
isn't happening anytime soon. Changing the system is difficult Because the challenging currencies
cannot credibly replace the USD. In any case,
America would have to actively support Dollarization for it to happen. A hypothetical commodity
currency would be worse than the dollar Because it would be pro-cyclical
and more volatile. While commodity prices are low,
the states backing This currency would sell it
to prop up their economies. And because that is exactly when its value
would be the lowest. In other words, China doesn't really want
the want to replace the dollar, And neither is it strategically
well-placed for that to happen. What China does want Is to use its dollars in a way
that benefits its national interest. Imagine you are China. You receive dollars
for selling phones to Americans. So how can you use these dollars? Well, you can, for example, buy
lots and lots of American assets When American asset
that's easy to acquire is a U.S. Government debt. HK Treasuries. China has been recycling its massive
dollar surpluses into treasuries, Which is where the China holds a lot
of American debt headlines come from. If China buys less U.S. Debt, then that would count
as a form of dollarization. And that's exactly what's happening. According to Luke Gromen. Gromen argues that China does not want
so much to move away from the dollar As a currency, But it does want to move away from holding
claims on dollar denominated debt. Ideally, China would want to remain
two times gold and use that as a reserve Asset. The reasoning while gold
is harder to weaponize and also sanction. Economics blogger Noah

Smith thinks that it's not a threat
to the dollar's hegemony. Even if you were to pump gold, the U.S. And its allies Hold more than 70% of gold reserves,
making such a move by China ineffective. Finally, we should ask, is
the dollar as the reserve currency? Even the big deal it's made out to be? Or the ever knowledgeable Bitcoin expert
Matthew Pines Thinks that the fears of dollarization
are just a proxy for fears the U.S. Will lose its status
as the world's leader. And indeed,
it may be a bit of dollarization. Could be good because, as Lyn Alden does,
you can make the case That a powerful dollar is good for elites,
but not for the average Joe. Without getting into the economic
nitty gritty, having a bit less global Reserve currency
juice would actually probably help U.S. Manufacturing
and thus American blue collar workers. So let's conclude. The dollar isn't going anywhere for now. But other countries have less appetite For dollar debt
and are looking for alternatives. And the U.S. itself
may welcome all of this. Okay, Great economic lesson. You may say, but what does this mean
for me as a crypto holder? Well, let's get into that. So what does that mean for crypto? Well, we've discussed the relationship
between the dollar and crypto, Specifically Bitcoin And many articles on Alexandria,
which you can find At the top of the description
and below most recently. So in the relationship
between Bretton Woods III and Crypto
and the Dollar milkshake theory in crypto, The Bretton Woods
III theory is essentially The academic way to argue
for dollarization regarding crypto. Here's what we've concluded. On the one hand, crypto

Could become an alternative payment system
or even a global reserve. Bitcoin as a digital commodity Could become a marginal addition
as a central bank reserve. Even a Harvard University
research paper recommends Bitcoin. On the other hand,
there are significant downsides For nation states
to adding bitcoins to the reserves. As we explored in the Bitcoin nation
state theory. The more Bitcoin is seen as a digital
commodity and not as a speculative asset, The less volatile
it will be and vice versa. And that has not changed,
in fact that Bitcoin recently hit 30,000. So maybe it's starting to slowly
make the transition to a safe haven asset. Again, it's complicated. Yes, in theory, Bitcoin exhibits many
desirable qualities as a reserve asset. It may not become the next world
reserve currency, but it could at least Rival analog gold
as one alternative reserve asset. But in practice, we have seen the U.S. Crack down hard on crypto
in the first months of 2023, Even though industry leaders
like Brian Armstrong warn That clear and correct regulation
is a matter of national security. The current presidential administration
has unfortunately chosen To be on the warpath with the crypto
industry currently, and this could And hopefully will change a dollarization
push for a bigger role of crypto. It's likely to come from outside the U.S.,
if at all. For example, China is backtracking on its crypto ban
and welcoming the industry back Through the back door by welcoming
exchanges and stablecoins in Hong Kong. So the pro crypto argument
for China is clear. Maybe crypto cannot be easily controlled,
but the upside is that it cannot be Easily sanctioned as well either. And it can be at least a useful tool,
among others. By design, that dollarization means
substituting the dollar For other currencies, Even if only a fraction of the liquidity
is directed to cryptocurrencies. That could pump prices in the long run,
but that is not guaranteed by any means.