What the brake on de-dollarization between Russia and India indicates

By | May 10, 2023

The favorite topic of several economic analysts lately refers to the attempts of many countries to disassociate themselves from the dollar. In fact, as we have argued, for the first time the supremacy of the US currency is being challenged so openly and by so many.

However, from the beginning we made it clear that we are still a long way from having the dollar squeezed on the canvas. It is not an immediate and painless process, even if the de-dollarization goal is finally achieved at some point in the future.

The global dominance of a currency is one long process It took the end of World War II for the dollar to replace the pound sterling, even though the US economy had already surpassed Britain’s in 1880.

How much more when the rising currency of the BRICS will emerge from an alliance of disparate countries and interests, whose only essential common element is the attempt to overthrow the established power of the Americans.

The trust problem

To achieve such an undertaking, it will be necessary to start from the basics. That the allied countries reach an agreement. Today, however, we see that two of the greatest powers do not want to cooperate and make agreements that do not favor their narrow national interests.

As reported by Reuters, a week ago India and the Russia suspended efforts to establish the payment method at its store after months of negotiations. The Indians failed to persuade the Russians to keep rupees in their coffers.

Although the Indians buy cheap oil and coal from Russia, they import more goods than they export to Russia. In particular, it is estimated that the trade surplus of the Russians will reach a value of 40 billion dollars, which the Indians want to pay with their own currency. Something that the Russians, who already have several billion dollars in rupees deposited in Indian banks, refuse to accept. They want to be paid at least in Chinese yuan. They also want to convert the ones they already own into other currencies.

The reasons are basically two. The first is about the availability of the Indian currency. have nothing to do with them rupees. India’s share in world merchandise exports is only 2%. Therefore, they are useless to them. The second refers to the risk of devaluation of the Indian currency or uncontrolled printing by India. That is, the risk that currencies that have nowhere to use them in international trade lose their value.

The Indians, in turn, do not wish to pay Russia in US dollars. Apart from the well-known geopolitical reasons, they fear they could face sanctions. In addition, they are reluctant to pay rublesbecause they are not at all confident of getting it on world markets at a fair price, Indian sources told Bloomberg last month.

The dollar and gold solution

The dollar is used to address just that. international trade problems. That’s why it dominated as the world’s reserve currency, not because the Americans forced it to.

It was convenient for everyone because it has the advantages of wide acceptance in world trade, reliable stability, and scattered quantity all over the world.

These are the reasons why there are many states willing to accept it in instead for their own assets and their central banks prefer to keep it as the main currency in their foreign reserves.

Alternatively, the next reliable option is gold, which however has the disadvantage of being heavy, cumbersome and expensive to store. This was the reason why paper money was used, even during periods when it was locked in parity with gold. Anyone with paper may have risked not being able to turn it into gold and running into losses, but the need to facilitate transactions prevailed.

The next reserve currency candidate

Which has the necessary conditions to become the world’s dominant reserve currency in the future, which has the scarcity of gold and the ease of electronic transfer? He Bitcoin. But not today’s, with its small cap and still small adoption rate, but strong and mainstream Bitcoin.

What advantage does Bitcoin have and can it become a reserve currency? First of all, it is neutral. It does not belong to any state, to any company, it is not issued by anyone. central bank. It is acquired by anyone who is willing to spend resources to create it. Literally anyone, without even owning it on your soil, like you do with gold.

It is rarer than all goods (and gold), along with the advantage of its very small and precise subdivision. Also, it is safer custody of and faster in transactions. I can send it to thousands of locations in seconds. No matter how large the quantity, in any part of the world that I want. It is portable and indestructible.

characterize it digital gold, because it is the dematerialization of gold. While Google digitized the library, Apple the camera, Facebook the cafeteria and launched its capabilities. What else is on the horizon with these properties? Nothing. Bitcoin only.

What is missing? Parity stability and increased recognition. For now, it’s a new, immature, store-of-value emerging asset. That is why it has more volatility than gold, which is protected by the glamor of thousands of years of history.

Bitcoin has peculiarities that we have never encountered before and that is why it is difficult to estimate the worth of. But every day more and more people are informed and feel more confident in owning it. One day, according to its fanatical followers, Bitcoin will be the most boring stock market. However, if they are right and it gets to that point, prices will be significantly higher than they are today.

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* The article is not a solicitation to buy or sell the listed securities. Provided for informational purposes only.

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