- A prolonged tariff war is likely to isolate global trade, prompting countries to diversify their foreign exchange reserves.
- Gold is unlikely to keep up with the demand, and Bitcoin has clearly emerged as a substitute.
- Multiple countries are likely to set up their own Bitcoin Reserves by 2030, as per Richard Teng, CEO of Binance.
The Current US-Led Trade War Summarized
Donald Trump has been trying to do turn correct a historical wrong as he tries to implement reciprocal tariffs for each individual country that has taxed the US government at a higher rates as compared to their own material being taxed in the US.
A few days ago Trump had shared reciprocal tariffs from multiple countries shocking top trading partners like India the European Union the United Kingdom Japan and China. However, soon he lowered the tariffs for all except China, so that each individual nation could negotiate their own trade deal with the United States on better terms.
However, these tariffs seem to have spooked multiple central banks which have been holding hundreds of billions of US dollars in their forex reserves. One of these banks is the People’s Republic Bank of China. This bank holds almost a trillion of dollars and has the highest dollar reserves of any foreign nation in the world.
Fearing a trade war and the potential weakening of the US Dollar, the Chinese Central Bank, possibly along with the Japanese, the Indian, and the European Central Banks, are believed to have been trying to minimize their Dollar Reserves and switching to Gold.
Gold is Unlikely to Keep up with Demand
In the middle of a global tariff war, gold prices have shot up to an all-time-high of $3300 per ounce (roughly 30 grams).
However the limited amount of gold available in the world makes it a bad reserve asset for many central banks. Even with a limited tariff war gold has been making 20% to 30% rallies within the past couple of years. As the trade war intensifies we have a doubt that this demand would be met with a supply shock taking the price of gold even higher.
Bitcoin as a Reserve Asset
The idea of Bitcoin as a reserve asset could emerge much sooner than previously expected. Several countries like Bhutan, El Salvador, the USA, and China have been building their own Bitcoin reserves for quite a time.
Lately, Binance CEO Richard Teng has also said in public that their organisation (Binance) has been consulting with many governments to establish independent Bitcoin Reserves.
Finally this brings to our initial assumption that a prolonged trade war leading to a de-dollarize world will seek Gold. However, the shortage of Gold is expected to give rise to Bitcoin’s adoption into those treasuries.
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