Ripple (XRP) has been in the news quite a bit for an SEC lawsuit claiming that the cryptocurrency is a security rather than a cryptocurrency. Despite the lawsuit, the price has actually risen over time.
Outside of that, Ripple is a very interesting cryptocurrency that many have speculated could replace the US Dollar as the world reserve currency. Personally, we find this unlikely, but Ripple does offer some benefits compared to the US Dollar and an argument can be made for why XRP could replace the US Dollar.
This article will explain that argument.
What Is XRP?
XRP is the native token of Ripple. XRP is a little different from other cryptocurrencies for a few reasons. Ironically, these reasons are also why the company is currently facing a lawsuit by the SEC.
Anyway, here are some bullet points on what XRP actually is and how it works.
- XRP is a bridge currency. XRP is a bridge currency because it serves as the native token across a network of gateways that allow users to send and receive many different types of fiat currency and cryptocurrency.
- XRP is not mined. XRP is not mined. The currency was premined. Computing power is mostly provided by bank servers.
- XRP is more of a replacement for SWIFT than a currency. XRP works more as a replacement for SWIFT, the system used for international money transfers, than an actual currency.
What Will It Take for XRP To Become The World Reserve Currency?
It will take a lot for XRP to become the world reserve currency. This section will cover some of those things. However, it’s important to note that even if XRP can meet all these criteria it is still unlikely that XRP will become the world reserve currency.
Becoming the world reserve currency is a big ask.
China’s Attempt at Becoming The World Reserve Currency Must Fail
A huge, major problem at XRP becoming the world reserve currency is China.
China has a very clear goal of turning the Chinese Yuan into the world reserve currency. This is obvious by China’s One Belt One Road initiative (OBOR) that calls for China building trading infrastructure in nearly 80 countries.
Trading infrastructure in so many countries implies that the Chinese Yuan will become the world reserve currency. That is something that Ripple must compete with in order to become the world reserve currency.
Ripple Must Resolve Its SEC Lawsuit
Ripple currently faces an SEC lawsuit because the SEC claims that Ripple advertised itself as a cryptocurrency rather than a security.
The SEC likely has a good argument with this case. And it is something that Ripple must handle before they can move forward with becoming a world reserve currency. Albeit there are alternatives like moving the company to a country like Japan that considers Ripple a cryptocurrency.
The company will still not be able to operate in the US until it can handle this SEC lawsuit. They already lost their listing on some cryptocurrency exchanges like Coinbase and Binance because of the SEC lawsuit.
To summarize, Ripple must resolve its lawsuit with the United States government before it can move forward to becoming a world reserve currency.
Countries Must Hold XRP
Finally, one of the most important hurdles for XRP becoming the world reserve currency is that countries must hold XRP in reserve.
This sounds like a tall task at the moment, but things are quickly changing with the near infinite printing of fiat currency by central banks in response to the COVID-19 pandemic.
Basically, fiat currencies are not the major safe haven that they used to be a few years before the COVID-19 pandemic because central banks have decided to debase their fiat currencies.
This could provide a chance for XRP to slip into the balance sheets of some central banks. We do find this extremely unlikely. However, something like this happening is still a possibility.
The Future of Ripple/XRP
XRP likely does not have a future as a world reserve currency. That is simply not the point of the XRP nor does it appear that enough countries will decide to hold it in reserve for this to occur.
The most likely future of Ripple/XRP is as a replacement for SWIFT. For those that do not know, SWIFT is a system used to transfer money across borders between banks.
If you have ever sent an international wire transfer, then you probably used SWIFT. It’s slow with transactions taking a few days to a few weeks. The fees are also high for something as basic as transferring money. Another point often forgotten about SWIFT is that the US government is highly involved with its operations because of the US status as the world reserve currency (read: US currency transfers go through US banks). The US government has seized intra-European transfers and put pressure on European banks for providing banking services to Iran.
Ripple, on the other hand, takes a few seconds to transfer money across the world. The fees on Ripple are also fractions of a cent.
Ripple is simply better than SWIFT for transferring large amounts of money. And it has less problems with the US government interfering in transfers between parties. Though if Ripple becomes popular, then the US government would likely exert some influence over the free flow of funds between countries.
Traditional Cryptocurrency is Still Better
The thing with Ripple is that it’s mostly just a replacement for SWIFT and money transfers. It is not actually a cryptocurrency like Bitcoin or Ethereum.
In fact, there is still a centralized body governing all XRP transactions, which makes it terrible compared to decentralized cryptocurrency. We will say that XRP is not even a particularly good investment because of the centralization problems and lawsuit problems.
You would likely be much better off investing in Ethereum or Bitcoin at the moment. Both those cryptocurrencies offer the same thing as Ripple in a much more private, decentralized, and trustless manner. The only difference is that fees are a little higher with Bitcoin and a lot higher with Ethereum (for now).
Higher fees are a small price to pay for having something truly immutable, anonymous, and decentralized.
That covers it for the chances of XRP becoming the world reserve currency. We find it extremely unlikely that this will actually occur. The thing that might occur is that many banks will use XRP to transfer funds between each other because of the lower fees and faster times.
The chances of most countries in the world using XRP is slim. The chances of banks using it for internal transactions is high because of the lower fees and faster times. You still should focus on investing in real cryptocurrencies like Bitcoin, Ethereum, Chainlink, and so on.