Gold and Bitcoin in the Reform of the Monetary System

In recent years, the correlation between Bitcoin and gold prices has significantly increased, a phenomenon that resonates with the arrival of the "post-pandemic" new era. In this context, Bitcoin has the potential to participate in the major revolution of the international monetary system. This round of changes in the international monetary system may unprecedentedly accelerate the deepening of Bitcoin's "gold" attributes, allowing its reserve currency value to enter the mainstream spotlight more quickly.

Looking back at the history of currency and the development of the international monetary system, precious metals, especially gold, have become the forerunners of human consensus—currency—due to their scarcity, divisibility, and ease of storage. In the early 19th century, the United Kingdom established the gold standard, and the main responsibility of central banks was to maintain the official parity between their currency and gold. After the two World Wars, the Bretton Woods system was established, making the gold standard more standardized and institutionalized.

However, there is a fundamental contradiction in the fact that the US dollar is pegged to gold and has become the world's currency: economic development requires an increase in the money supply, but this can lead to currency depreciation; while maintaining dollar stability requires keeping the balance of international payments, which makes it impossible to increase the money supply. This is known as the "Triffin Dilemma." In 1976, the Bretton Woods system collapsed, and the Jamaican system was established. After decoupling the dollar from gold, it became the world reserve currency based on "hegemony."

While the dominance of the US dollar has driven international trade and global economic development, it also faces inherent dilemmas. The strength of the United States cannot remain robust forever, and the dollar's hegemony imposes a seigniorage tax on the world, making this vast system difficult to extricate itself from. The trade deficit and fiscal deficit continue to expand, a problem that has accelerated during the pandemic, with government debt expanding uncontrollably. Furthermore, geopolitical issues are becoming increasingly prominent, and Russia's expulsion from the SWIFT system can be regarded as the "singularity" of the significant divergence trend in the currency field.

Nevertheless, the international monetary status of the US dollar remains irreplaceable in the short term. By the end of 2023, the share of the United States in the global economy still accounts for a quarter, with the US dollar's share in global currency payments rising to 48%, and its share in international foreign exchange reserves reaching 59%. However, the spark of major change has already ignited, and the Jamaica system based on dollar hegemony is difficult to sustain under the new geopolitical landscape and technological development trends.

There is currently no conclusion regarding the future form of the international monetary system. The World Bank has previously predicted three possible scenarios: the continuation of the dollar hegemony, the coexistence of the dollar, euro, and some Asian currency, or the comprehensive use of SDR (Special Drawing Rights). It now appears that "de-dollarization" has become a consensus, and it is only a matter of time before quantitative change leads to qualitative change. Events such as the COVID-19 pandemic, geopolitical conflicts, and political changes are accelerating this process.

The "de-dollarization" process may suddenly accelerate under several circumstances. First, the accelerated fragmentation of industrial chains: the global division of labor and cooperation system may experience a reversal, with security factors taking precedence over development in many scenarios. Second, geopolitical factors: the situation is becoming increasingly complex, and a "new Cold War" may emerge, potentially leading to a multipolar balance of power in the future.

After the gradual dissolution of the U.S. dollar hegemony, global trade continues to develop, and the most likely scenario is a diversified reserve currency system, primarily consisting of the U.S. dollar, euro, and renminbi, with the pound, yen, SDR, and others as supplements. There are also analyses suggesting that in the future, a "foreign currency" system supported by gold and other commodities may emerge, emphasizing the commodity value of real resources (especially energy) as the backing for currency.

In this context, the financial market presents two trending trading directions: first, gold is departing from the traditional real interest rate pricing logic, with prices continuing to rise; second, Bitcoin is departing from the traditional risk asset pricing logic, showing strong performance. These two trends reflect investors' expectations for future changes in the monetary system and concerns about the uncertainties of the traditional financial system.