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Can the dollar hold up against cryptocurrencies?

The dollar and bitcoin.

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The price of the dollar rose by about 20% during the past year against a basket of world currencies, which is at its highest level in 20 years, and one euro is currently equal to less than a dollar.

The Japanese yen, the Chinese yuan, and even cryptocurrencies such as “Bitcoin” fell against the dollar, all of which rushed into the dollar-based financial system as a safe haven, making the dollar dominating the global financial scene.

The Economist says that while Europe and China are facing recession, the US economy has proven remarkably resilient, with job growth and earnings still strong.

Inflation is high and the Federal Reserve is raising interest rates faster and higher than other central banks.

A strong dollar has some advantages. It helps reduce inflation, even if it causes some long-term product competitiveness problems, but it still leads in trade bills and cross-border debt.

As a result, as the Federal Reserve raised interest rates, capital shifted to America, and emerging markets' finances shrank.

So far, large economies such as India have held up well, but smaller debt-heavy countries such as Sri Lanka and Pakistan face a major problem.

The continuity of this dollar-based world order is a testament to the survival of an America that has gone through hard times in the past 15 years, including a financial crisis, a poorly handled pandemic, fiscal deficits and a constitutional crisis in 2021.

But with the rise of the dollar, there are two technical developments that are receiving close attention. The first is payment systems and digital currencies operated by countries that are gaining significant momentum, such as the Chinese electronic yuan, which has 260 million users, which may allow China to operate its own global payments network that makes it Immune to US sanctions.

Government payment systems elsewhere also demonstrate strong network effects, such as those in India and Brazil, which in the future could facilitate cross-border transactions as alternatives to the dollar-based system.

The second development is the improvement of decentralized finance techniques.

The next change in currency regimes may not be entirely clear, as new technologies allow countries to have autonomy in payments.

Although the position of the dollar's reserve currency has not yet changed, technology may change this meaning.

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