Is Bitcoin Helping to Bring About De-dollarization and a New Monetary World Order?

Yes, there is growing talk of de-dollarization, a process by which much of the globe turns away from the US dollar as its de facto reserve currency. This process has arguably been underway for several years now (what with the growth of China and its Belt and Road Initiative), but has picked up steam in more recent years, reaching a new intensity with US-led sanctions against Russia in the wake of the latter’s invasion of Ukraine. Such sanctions have had the effect of isolating a growing number of countries from the US dollar, and in its place the Chinese yuan and other currencies are gaining importance, including Bitcoin.

How much of a role is Bitcoin playing in this process of de-dollarization, and how much could it play in the future? Well, at the moment, attempts to de-dollarize international trade involve the yuan and other fiat currencies, with some countries (e.g. China) remaining hostile to Bitcoin and cryptocurrency in general. That said, recent U-turns by Russia — now a major player in the move to de-dollarize — suggest that Bitcoin and other virtual currencies could become, in time, a more important factor in the eclipse of the almighty dollar.

Ukraine War Accelerates Pre-existing De-Dollarization Process

De-dollarization has become a hot topic in the wake of the Ukraine-Russia war. Searches for the term reached an all-time high in the week between March 27 and April 2, according to Google Trends data. A string of opinion articles are being dedicated to the concept, with UBS analyst Zoltan Pozsar authoring a report in early March in which he warned that after the “war is over, ‘money’ will never be the same again.”

However, as with most crises, the Ukraine-Russia conflict — and the sanctions arising from it — have merely accelerated pre-existing trends. Writing in the 2021 edition of his Super Imperialism: The Economic Strategy of American Empire, economist Michael Hudson describes how “self-defeating” US sanctions against China and Russia had already encouraged these two nations in particular to “create an alternative economic order with its own rules, and replace the dollar by negotiating their own mutual currency swaps, using gold, or both gold and swaps together.”

While Hudson was writing well before the Ukraine crisis matured into a fully fledged war, the process he describes above has gained momentum since the end of February. Most notably, Russia gave China the option of paying for Russian oil in rubles in late March, while India — the sixth biggest economy in the world and the third-biggest importer of oil — has been exploring the possibility of a ruble-rupee payment scheme for oil. And there’s also Saudi Arabia, which is discussing accepting the Chinese yuan for its oil.

China, Russia Look for Alternatives

In other words, the war is helping to advance a process that Hudson has been predicting for some time now. Indeed, de-dollarization is in fact becoming something close to a necessity for Russia (and other nations), since it’s the only way of avoiding US-led sanctions (which relate to US dollars).

“To create such an alternative to the Dollar Area’s Treasury-bill standard (and America’s potential ability to impose financial sanctions at will and without regards for international law or treaties), China and Russia and other countries are moving to replace dollars with gold and mutually holding each other’s currencies,” writes Hudson, a professor of economics at University of Missouri–Kansas City, and a researcher at the Levy Economics Institute at Bard College.

A movement towards gold is something that the aforementioned Pozsar outlined in his report, in which he predicted the birth of “Bretton Woods III” and “a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system.” In particular, the UBS analyst predicts that once the war and its crisis is over, “the U.S. dollar should be much weaker and, on the flipside, the renminbi [yuan] much stronger, backed by a basket of commodities.”

Magnifying the decline of the US dollar (and euro) during this period, the Russian government also declared in late March that all “unfriendly” nations (i.e. pretty much every nation in NATO and the EU) must now pay for Russian gas and oil using rubles. Given that many EU nations continue to import Russian fossil fuels, this means plenty of trade is happening right now in rubles.

How Much Will Bitcoin and Cryptocurrency Benefit?

It’s therefore clear that a process of de-dollarization is currently underway, even if it’s not certain whether things may ‘normalize’ following a hopefully peaceful conclusion to the Ukraine-Russia war. Given that de-dollarization had already been happening before the war, there remains a chance the process will continue.

So where does Bitcoin fit into this? Pozsar concluded his note on the “Bretton Woods III” monetary system by suggesting that the cryptocurrency “will probably benefit from all this,” although without specifying to what extent. Other figures closer to the cryptocurrency sector have also (unsurprisingly) suggested that one of the lasting effects of the war will be to hasten the drive away from the US dollar and towards cryptocurrencies.

“We’ve never had a group of nations in essence confiscate real estate from Russian tycoons,” the founder of Galaxy Digital Holdings said in an interview. “This sends a message: I want to have money that lives outside of traditional power. That’s why Bitcoin was created, because people don’t trust governments,” said Galaxy Digital’s Mike Novogratz, speaking to Bloomberg in early March.

While a growing share of international trade is undoubtedly being conducted in currencies other than the US dollar, there’s also little doubt that pretty much no such trade is being settled using bitcoin. At least not now, given the fact that the price of BTC (and most other coins) has remained down since November.

BTC, Crypto Will Benefit From De-Dollarization

The solidification of de-dollarization as a process may spur some nations to seriously consider Bitcoin adopting it as one more commodity-currency in a new multipolar monetary system. Russia already seems open to this: one senior Russian lawmaker has suggested that it may accept Bitcoin as payment for oil and gas (from ‘friendly’ nations), while one official with its Chamber of Commerce has suggested that digital currencies may be used as part of trade with Africa. Meanwhile, the government has recently U-turned on its formerly hard stance against cryptocurrencies, with the Russian Ministry of Finance sharing a bill this month that will grant legal status to cryptocurrency payments.

This all indicates a gradual embrace of Bitcoin and cryptocurrency. However, it hardly proves that Bitcoin or any other virtual currency is or will play a pivotal role in de-dollarization. Instead, it may be a beneficiary of de-dollarization rather than a key driver, with some governments (e.g. China) leaning more towards the use of central bank digital currencies that decentralized cryptocurrencies such as Bitcoin.

Still, de-dollarization is happening, and Bitcoin’s entire existence is arguably predicated on a move away from the US dollar (and other fiat currencies). It will be interesting to see just how much it benefits.