Bitcoin can Become a new Foreign Reserve Currency for Governments

Governments all over the world are dealing with dwindling foreign currency reserves. China is an excellent example of how the government and central bank have been forced to spend large amounts of foreign reserves to keep the Yuan somewhat stable. It is not unlikely to think some nations will start to buy Bitcoin reserves in 2017 and beyond.

Governments Can Benefit From Portfolio Diversification

Holding a basket of foreign currency is always somewhat of a risk. The year 2016 has shown the world how volatile these markets can be, affecting both smaller and large national currencies. China’s Yuan is the most notorious example of a dwindling currency value that can’t be kept afloat artificially, even when the PBOC start selling off foreign reserves.

Other countries around the world have seen their fair share of national currency depreciation as well. Venezuela, India, Egypt and Nigeria are just some of the examples. It is obvious new solutions must be found to deal with volatile markets. The currency markets exhibited quite an irrational behavior in 2016, and the volatility most likely will not quiet down in 2017.

Alternative investments are not easy to come by, not even for central banks and governments. Gold has always been a solid choice, yet the price per ounce has been suffering from the same volatile trading market behavior as national currencies. One thing all of these assets have in common is how they are affected by political decisions, which can send the value spiraling downwards quickly.

Enter Bitcoin, the one currency in the world that can’t be influenced by governments or banks. In fact, the value of Bitcoin has only gone up over the past few months, while all other financial markets show strong volatility. It is not surprising Bitcoin has been the best performing asset in 2016 once again. Cryptocurrency also represents an excellent way to diversify a trading portfolio, because it is a free market rather than a controlled one.

Governments may want to start looking into buying smaller amounts of Bitcoin as a foreign reserve. Since Bitcoin is not a national currency, but already on the same level as foreign currencies in Russia, it presents a more than viable solution. Its market is volatile at times, but it still managed to outperform any other asset in the world. Moreover, it can be transported globally without relying on banks or other central institutions.

At the same time, these governments need to keep in mind investing in Bitcoin still carries risk, just like any other foreign currency or asset. That being said, compared to the trillions of currency held in reserve, a  small amount of Bitcoin will represent as close to 0% risk as possible. It is an option every government should consider, although it remains doubtful anyone will take the plunge.

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