Last year, in June 2014, Kuwait Financial Center better known as Markaz released a report on bitcoin. The report titled – Disruptive Technology: Bitcoins, Currency Reinvented suggested the use of bitcoin as a mode of payment for petroleum trade. This report caused a lot of debate among economists and the bitcoin community.
Even though Markaz’s proposal sounds attractive, it is not a feasible option at the moment. There are number of factors that will hinder the adoption of bitcoin as a payment mode/mechanism for international trade. Creating petrobitcoin by removing petrodollar from the equation is a tough sell. It is virtually impossible in the current scenario due to various constraints and possible repercussions.
Read More: Bitcoin for International Petroleum Trade?
Theoretically, petrobitcoin* is the solution to reduce the hegemony of petrodollar over oil producing countries. Using bitcoin for petroleum trade will also significantly reduce the time required for the transaction for 3 working days to a few minutes, while eliminating bank charges/transaction costs and documentation. It will be a satisfactory alternative to eliminate the dependency on any one nation’s currency for trade. Maybe it will become a reality in the future, but not at the moment. Petrobitcoin will encounter resistance for multiple reasons. Due to the volatile nature of bitcoin in combination with its limited numbers, bitcoin doesn’t present itself to be a viable option at this moment. Once it enters the mainstream economy, petrobitcoin can become a reality. However, this doesn’t mean bitcoin technology can’t be used for high value transactions as in the case of petroleum trade. Bitcoin technology can be utilized to upgrade legacy-banking system and make transactions virtually painless. With the adoption of such technology, countries can trade using an alternative digital currency or use their own domestic currencies.
Any move to replace the petrodollar will be met with a fierce resistance by the United States. There are allegations (call it conspiracy theory if you must) that the main intentions of invading Iraq and Libya was to prevent Saddam Hussain and Muammar Gaddafi from ditching petrodollar for petroeuro and gold respectively. Even if the dollar loses its influence, China would want to install yuan in its place. China is working hard to project itself as the next superpower without hiding its geopolitical and military ambitions. Yuan’s influence on the global economy is not to be doubted, especially with its growing sphere of influence across all the continents. China is busy setting up a yuan clearing house in all the major financial centers of the world. Being the founding member of AIIB, BRICS NDB and a permanent member of UN Security Council, it will never lose an opportunity to throw a spanner into the works.
Euro was assumed to be next in line after the dollar, but given the current debt ridden EU economy, it is unlikely to keep up with the yuan. Even though the ruble is in the distant third position, Russia has control over a large portion of Europe’s energy market and it works in the ruble’s favor, and Russia would not lose a chance to undermine the western bloc nations by dominating the oil economy with petroruble.
Given this messy situation, it is going to take a long time for petrobitcoin to become a reality. Nevertheless, Markaz’s report on bitcoin for petroleum trade is a step in the right direction and all we can do right now is to hope for bitcoin to gain widespread acceptability, especially among the governments and central banks for this vision to become a reality.
Author Note: *petrobitcoin - analogous with the term petrodollar as a reference to USD used as a standard currency for petroleum trade by OPEC