A financial and economic analyst, Charles Lee in his opinion stated that the third-largest crypto, by market capitalization, XRP, will do better as a potential reserve currency when backed by gold and not USD.
He came up with this opinion following the recent call, by the bank of England governor, Mark Carney to replace the dollar with a central bank-supported digital asset.
The analyst believes that since Carney said no to the top two digital assets, Bitcoin and Ethereum, then XRP should be next to be considered. Now he is suggesting how he thinks the third top digital asset can fit in as the global hedge currency.
Why XRP Should be Backed by Gold and Not the Dollar.
The dollar is not standing alone as a currency. Just as any other currency, dollar changes value, and rate every day as currencies are traded on the foreign exchange market.
The foreign exchange value of any currency depends on such factors as, central bank’s interest rate, the country’s debt level, and its economic strength. If these factors are strong, the value of the currency will be high.
The value of the dollar is determined by what happens in the foreign exchange market as the dollar is compared with other currencies of the world.
The dollar value is in sync with demand for treasury notes, the US Department of the Treasury sells notes for a fixed rate and face value.
China and Japan are the largest holders of US dollars, any issue with this connection will see dollar crashing, which will affect any currency backed with it.
As stated by Mr. Lee, gold would be a better option to back XRP because it does not easily fluctuate in value. The worth and stability of gold will boost XRP current value.
There are about 7 trillion dollars of gold globally and all the XRP is just 100 billion. So if XRP is backed by gold, its value will increase to $70 each which will be a very good start for the token to thrive.
Backing XRP with gold would also reduce volatility since the price will not be changing all the time.