The Geopolitical Role of Bitcoin and Stablecoins Pegged Using Fiat Currencies

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Bittime - The emergence of Bitcoin and various other digital finances has shifted the world's view of the modern financial world.

So, what geopolitical role has Bitcoin played? Read more in this article.

The global financial framework in place since the end of the Second World War, established in 1944 during the Bretton Woods Conference, included the decision to strengthen the United States dollar by linking it to gold, while other countries' currencies were tied to the US dollar, making it the world's reserve currency.

In 2008, the dollar's strength began to show signs of decline as the onset of a major financial crisis triggered quantitative easing, a practice in which central banks buy government bonds to stimulate the economy.

That same year, Bitcoin was introduced as a revolutionary, open, borderless, permissionless and decentralized form of digital money.

The Chinese yuan has increased its influence in line with China's economic growth in recent years. 

In addition, the BRICS countries (Brazil, Russia, India, China and South Africa) are intensifying discussions about creating their own currencies for international transactions, adding pressure to the dominance of the US dollar.

These developments reflect changes in the global environment and the desire for a more diversified monetary system.

Also Read: What are Stablecoins and How Are They Different from Fiat?

Considerations regarding the US central bank digital currency (CBDC) are also in the spotlight, especially as states such as Texas, Florida and North Carolina show skepticism towards it. 

In this context, the US may face difficulties in finding a solution to respond to the dollar-related global economic downturn. 

If opposition to the launch of CBDCs continues, the US may be forced to look to alternatives such as stablecoins as a more realistic option.

Although the US remains committed to research and aspirations to develop its CBDC, these efforts still face several obstacles. 

Although the US dollar is accepted as legal tender in some countries and is widely used in international trade, it does not have the status of a globally accepted universal currency.

To date, there has been no sign that a " digital dollar " will be available to citizens and territories outside the US for use in everyday transactions. 

The US dollar is only recognized as legal tender in a few other countries that have internal monetary problems, such as Ecuador, Zimbabwe, Micronesia, Palau, Marshall Islands, El Salvador, and East Timor. Meanwhile, stablecoins are not bound by such restrictions.

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Stablecoins and Their Role in World Geopolitics

In the context of changing geopolitical dynamics and the global financial landscape, various stakeholders are trying to take relevant roles. 

The BRICS group, along with Argentina and Brazil's interest in the creation of a single currency for trade between the two countries, is contributing to changing this environment. 

At the same time, discussions regarding CBDC have led to internal conflicts in several US states, such as Florida, North Carolina and Texas.

To maintain its global financial leadership position, the US can seek alternative paths and take advantage of all available opportunities, including the use of fiat-backed stablecoins. 

Most likely, the US will try to adapt to the changing economic landscape while still trying to maintain its leading position in the global financial realm.

Brazilians and Argentines have adopted the US dollar as a significant store of value, so both countries, when facing financial instability, may limit dollar access for the general public. 

A report from Argentina's National Institute of Statistics and Census estimates that by 2022, Argentines will have savings worth more than $360 billion, which is equivalent to more than 1.5 years of savings for the country's average resident.

Stablecoins are similar to Bitcoin in their lack of restrictions, openness and freedom, allowing anyone to buy them. 

Citizens can obtain stablecoins through decentralized exchanges, even in the event of hyperinflation or economic mismanagement, without relying on the whims of the Argentine government. 

However, a significant difference between Bitcoin and stablecoins is the degree of centralization.

This allows stablecoin issuing companies to freeze assets if ordered by the US government. 

For example, in 2022, USD Coin (USDC) stablecoin issuing company Circle froze more than 75,000 USDC associated with 44 Tornado Cash addresses listed on the US Office of Foreign Assets Control's list of Specially Designated Nationals and Blocked Persons. Additionally, using blockchain analysis tools, governments can apply sanctions against asset holders identified as sanctioned individuals or countries.

Therefore, the US can use stablecoins to expand the use of the US dollar and increase its liquidity vis-à-vis other currencies. 

The US does not have to engage in currency confrontation to attract users from other countries to its system; this can begin as soon as the country realizes the benefits.

In an effort to safeguard its financial sovereignty, the European Union is taking proactive steps, including implementing capital controls and limiting the influence of foreign fiat and commodity-backed stablecoins, as set out in the MiCA regulations. 

In addition, the EU has shown urgency in developing a digital euro as a strategic move to maintain control over its financial system, as well as to protect its economic autonomy and reduce dependence on external factors that could potentially harm its financial independence.

Through the development of its own CBDC, known as a digital euro, the EU could strengthen the bloc's monetary sovereignty, given that the euro is a significant alternative to the US dollar. 

By encouraging the use of the euro in international trade and finance, Europe can reduce the potential for dollar stablecoins to take market share in the EU.

In addition, Europe can strengthen its position in geopolitics through cooperation with other countries and regions, such as establishing currency exchange arrangements and expanding trade agreements, as well as encouraging financial cooperation with countries outside the influence of the US dollar, which can strengthen the euro's position in global market share.

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Can Other Countries Use Their Fiat to Back-Up Bitcoin or Stablecoins?

Other major countries such as China, Russia, and India could use the same strategy to increase monetary and geopolitical influence, as well as increase adoption of their currencies through the use of fiat-backed stablecoins under their control.

However, despite this, their currency's market share in the global market is much smaller than that of the US dollar. 

Many individuals have a negative view of countries such as China and Russia, and may therefore be reluctant to adopt their currencies.

Additionally, BRICS member states may take action if these countries attempt to influence citizens of other countries to switch to fiat-backed stablecoins from other countries, and abandon their national currencies.

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DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.