Matthew Paddock Blog Post #3

 Blog Post #3: Is Bitcoin a Threat to Established Global Currencies? 

Over the past two decades, international monetary power has become more widely diffused. Due to this phenomenon, the authority of market agents has been enhanced at the expense of sovereign governments and their established bureaucratic entities concerning monetary policy. I argue that this problem will continue to be augmented with the advent of Bitcoin and other unique cryptocurrencies. 

Because Bitcoin is decentralized and unregulated across the globe, important questions have been raised regarding the ability of states to control their own forms of currency. The US dollar, the world’s “major reserve currency,” could be unseated by Bitcoin. I believe this could be the case because investors and traders have criticized soaring deficits within our economy and multi-trillion dollar spending programs enacted by the Biden administration. In due time, I think these individuals will switch and primarily use Bitcoin, unfettered by concerns over the national debt, administrative controls, or switching fiscal policy as presidents come and go from office. 

But what does this mean for the United States in the long term? If Bitcoin becomes the prevailing medium for the purchase of goods and services, I argue the US and other states will have major issues curbing inflation and maintaining stability of interest rates. The US will certainly lose operational authority and have to come to terms with a shift in power, facing competition from a relatively new form of currency that operates within a unique digital medium. Cohen refers to this situation as the “new geography of money.” Societal actors are not restricted to the use of a single currency and instead have a multiplicity of choices. To combat this issue, the United States will have to employ new forms of monetary policy and rally support from the international organizations that the country itself took part in creating. These include the International Monetary Fund, World Bank, and other regional trade partnerships. I maintain that unless the United States takes proactive steps, Bitcoin will continue to ascend and slowly replace the US dollar’s utter dominance across the world. 

However, many have argued that Bitcoin and similar cryptocurrencies will not be a threat to the prevalence of the US dollar around the world. Because Bitcoin operates within a blockchain that is accessible to anyone worldwide, the sheer openness of the system is a clear vulnerability that can allow malicious actors to engender severe damage. Politicians have also asserted that existing federal laws already protect the US dollar from competition. The Constitution’s Article I, Section 8, Clause 5 gives Congress the sole power to create and regulate money, not market agents or private investors. Since Bitcoin threatens the dollar’s dominance, it is effectively a “pirate currency.” Thus, under federal law, some claim that the utilization of Bitcoin is illegal since it fosters direct competition with the US dollar. 

Additionally, the US can utilize its interconnected network of allies and immense influence concerning international organizations that control monetary policy worldwide. The US can pull on its extended network of allies and partnerships to prevent Bitcoin from gaining international prevalence. Furthermore, as stated by Strange, the US has great levels of structural and institutional power because it participated in or outright led the creation of such organizations. Within the International Monetary Fund, the US possesses a 17% share that allows it to veto policy and effectively end debate. Similarly, the World Bank is led by Americans. With the stroke of a pen, the US has the authority to effectuate policy that restricts Bitcoin’s access and ultimately, prevents its growth as a dominant currency. Thus, no matter the situation, Bitcoin has to ‘play by the rules’ crafted and dictated by the US government and its allies. This is a serious hindrance to Bitcoin and lessens its designation as a threat.    

I believe that if Bitcoin continues to be adopted by major companies, banks, or other entities as a commonly tradeable currency, it will inevitably and gravely threaten the power and influence of established forms of currency. If governments choose to remain reactionary to Bitcoin’s meteoric growth, future administrations will be forced to face the consequences and adapt their monetary policy accordingly. Leaders in powerful positions need to attack the issue with a proactive approach and effectuate legislation that promotes the dollar before it is too late. Since the US has such strong structural and institutional power within the global financial sphere coupled with a multitude of strong alliances, this goal can be achieved.