Is Bitcoin The Next Reserve Currency?

"Processes related to the use of other instruments are taking place naturally. For example, bitcoin, who can ban it? Nobody. And who can prohibit the use of other electronic payment instruments? Nobody, because these are new technologies. And no matter what happens, no matter what happens to the dollar, these instruments will develop one way or another, because everyone will strive to reduce costs and increase reliability," Putin said, adding that this is an inevitable process.

https://tass.com/economy/1883669 December 6, 2024

On Wednesday, Russian President Vladimir Putin set the Crypto World on fire with his observation that Bitcoin could be used to facilitate international trade. It was music to the ears of the millions who invest in the Crypto space. To many in America, this seemed like a novel, off-the-wall suggestion.

To Wall Street and the financial community, it was just one more fanciful suggestion from a world leader who likes to talk. After all, he recently held a press conference that lasted over three hours, something unheard of in this country.

But there is much more to this than an idle suggestion from a loquacious Russian President. There is reason to believe that Bitcoin or other Cryptocurrencies could indeed fill an important void in international finance. A look into the backstory of Russian finance reveals that using Cryptocurrencies is perhaps the best option for Russia and the Global South.

President Putin was speaking at the VTB Bank conference held this year in Moscow. His remarks were titled “The Future of Capital, and the Capital of the Future.” Immediately, one can see that Putin’s primary focus is finance, specifically international finance. VTB Bank, after all, is one of Russia’s most important banks for trade and commerce.

VTB Bank has been the focus of US and EU Sanctions and restrictions for over ten years. When Russia annexed Crimea, the United States and the European Union promptly slapped sanctions on the VTB Bank. As the conflict in Ukraine has escalated, the sanctions against VTB have become increasingly harsh. After the initial sanctions in 2014, the SWIFT International Settlements System banned VTB from using its service.

In 2022, the European Union and the United States “froze” Russian assets held on deposit at EU and US banks. The lion’s share of these assets were on deposit at Euroclear, a Belgium-based depository used by banks and other financial institutions. More than $300 billion (US) has been confiscated. Although we don’t have the exact numbers, this move is estimated to cost VTB Bank about half its foreign reserves.

The strategy by Western leaders was clear: use financial sanctions as a tool to diminish Russia’s ability to sell its oil and other resources globally. However, much of the world, outside the EU and US, was shocked. For over 70 years, the US dollar has remained above political controversy as the international reserve currency. After the Bretton Woods Agreement, the Dollar, the World Bank, and the International Monetary Fund acted totally impartially, not taking part in regional or global disputes. Even during the most frigid days of the “Cold War,” they never intervened in US–USSR disputes.

The Conflict in Ukraine changed all that. Today, the US and NATO have used sanctions as a way to punish Russia. Aimed at Russia, it’s also been a costly tactic for America. Russia and China are now more closely allied than before, with most trade between these two economic giants occurring in their local currencies. Saudi Arabia has withdrawn from the Petro Dollar Agreement due, in considerable measure, to the Financial Sanctions. And it is rumored that a couple of dozen countries are lined up to join BRICS (and leave the Dollar Reserve System).

That’s not to say that there haven’t been costs on the Russian side. For VTB Bank, the past decade has been an especially difficult one. As we noted, the Bank endured a substantial loss when the EU and US confiscated its foreign deposits. Additionally, VTB lost a major subsidiary when its Ukraine Branch closed.

Is VTB anxious to find an alternative to the Dollar System? Of course. One answer would be a BRICS Currency. And that apparently is in the works, with both China and Russia spearheading this effort. However, taking that step would likely mean cutting off the new BRICS currency from the West, something that no businessperson would choose. After all, BRICS companies, no less than Western companies, seek the broadest possible market for their goods and services.

Unfortunately, a compromise between Russia and the West seems less and less likely. On Monday, President-elect Trump indicated he would slap a 100% tariff on any BRICS currency, effectively making BRICS products off-limits in the US.

Enter Bitcoin, a secure, proven currency whose foundation is the blockchain. An entirely neutral type of money, it is neither part of BRICS nor the United States. Bitcoin is a proven instrument, used by millions daily, traded and developed on the internet, outside the constraints of competing countries or alliances.

Perhaps Vladimir Putin was on to something when he mentioned Bitcoin as a global currency. Maybe a politically neutral medium of exchange is just what this world needs about now.