A new currency is typically a volatile currency. After all, how can it be considered stable if it has no record?
Crypto is still a currency newcomer, and so, still volatile. Yet, our safest fiat currencies were once new and had to work their way to stability. How might cryptocurrency–and Bitcoin especially–do the same?
We’ve read uber-academic articles on this subject, so you don’t have to. Here, we’ll discuss currency stability in the simplest language possible.
When is currency considered stable?
According to New World Economics, a currency is stable when its value doesn’t change significantly over time, Various factors contribute to stability, such as economic policies, inflation, interest rates, and even trust. In currency, optics matter.
What are examples of safe currencies?
The Japanese yen, Swiss franc, and U.S. dollar are all relatively safe currencies, according to Morgan Stanley in 2020. One of the primary reasons why: They’re backed by nations with strong economies.
Why has the U.S. dollar been stable for so long?
The simplest answer: The U.S. dollar is stable because its widely used.
The U.S. dollar is the national currency not just for the United States but also for Ecuador, Zimbabwe, El Salvador, and others. It’s the international reserve currency and comprises 60% of all known central bank foreign exchange reserves. As of 2018, $1,671 billion in U.S. dollars was circulating.
A currency is strong when people and businesses trust it.
How can Bitcoin become stable?
The best way to stabilize a volatile currency is through use. The more people who own Bitcoin and conduct business in Bitcoin, the more it stabilizes. It’s no coincidence that Bitcoin’s popularity is growing in countries with unstable financial systems, like Venezuela and Zimbabwe. There, Bitcoin is more stable than the national currencies.
As Bitcoin becomes more common, it incurs more trust. Like we said, optics matter.