Explore the effects of US re-dollarization, interest rate hikes, and global monetary policy. This article analyzes gold, bitcoin, and central bank actions, highlighting key trends in 2025–2026.
The idea of US “re-dollarization” and the possibility of interest rate hikes rather than decreases (and a higher long-term cost of capital more broadly) were two of this column’s most important concepts in 2025.
US Dollar Re-Domination and Market Implications
Tighter monetary policy has reappeared in 2026, and there are early indications that the US dollar will once again be the world’s most valuable currency. Two obvious victims of the re-dollarization dynamic are the price falls of bitcoin and gold.
The latter is predicated on the idea that the US is actively regaining its hegemonic dominance and promoting a revival of its competitive economic advantages in production, innovation, and entrepreneurship. The only instance of this is the AI-induced hyperscaler capex bubble. Another is the unprecedented global projection of American might by US President Donald Trump.
Trump’s Fed Appointment and Market Reactions
Trump’s (counterintuitively) announcement of his pick to succeed incumbent Jerome Powell as chair of the US Federal Reserve was the catalyst for the decline in the value of cryptocurrencies and gold, which had been leveraged as an alternative savings solution to the dollar.
The mainstream elites would have us think that Trump would choose a dovish patsy to cut rates and undermine the Fed’s reputation, but he chose Kevin Warsh, a longtime inflation hawk.
From 2006 to 2011, Warsh, a former investment banker at Morgan Stanley, was a member of the Fed board. During this time, he gained a reputation as an ultra-hawk who opposed quantitative easing and money that was too cheap and who wanted to quickly normalize policies with near-zero interest rates, even while the economy appeared to be struggling.
Gold, Bitcoin, and Investor Concerns
The startling 75% increase in gold’s value was a response to investor worries about US monetary devaluation, Trump’s alleged damage to the Fed’s reputation, and the possibility of increased inflation as a result of careless fiscal policies.
With their claims to be an excellent store of wealth and inflation hedge, cryptocurrencies have persistently taken advantage of these fears. Trump’s crypto-boosting actions, which were ostensibly created to further his own personal interests, significantly increased this fool’s gold.
💰 Gold & Bitcoin Price Update
- Gold Increase: +75% due to investor concerns
- Bitcoin Decline: Fell to US$60,000 (52% below peak)
- Reason: Re-dollarization & Fed hawkish stance
- Impact: Cryptocurrencies less appealing as alternative savings
However, bitcoin fell to just US$60,000 this week, which is around 13% below its closing price on the day of the 2024 US election and a startling 52% below its record high of US$126,000. It has dealt the crypto community a devastating blow.
In actuality, the price of bitcoin has been below its peak in 2021. Over the previous four years, you would have lost money if you had purchased this Ponzi scam back then.
Bitcoin’s Risks and Limitations
As previously said in this column, the only real inherent value of bitcoin is that it serves as an ostensibly covert and income-free savings instrument for people who want to hide wealth from governments.
Bitcoin is one of the most wildly volatile assets available and is not a reliable way to accumulate wealth. Despite exaggerated expectations, bitcoin has never been a widely used digital payment method or a secular medium of exchange.
In actuality, Bitcoin increases the negative risks associated with inflation rather than acting as the inflation hedge that many claim. The sharp rate increases that were necessary to stop the demand-side inflation shock caused bitcoin to fall 78% from its peak in 2022.
Cryptocurrency Security and Central Bank Interest Rates
Lastly, even the most ardent supporters of cryptocurrency acknowledge that both the blockchain and bitcoin have security flaws that could make them vulnerable to future attacks that would destroy their purpose.
The strongest argument for using this fake digital currency is as a potential refuge for those who reside in non-democratic nations and are constantly afraid of having their money taken away.
This editorial goes on to argue that interest rate increases that improve the appeal of cash deposits cannibalize demand for cryptocurrencies that seem to be reliable substitutes.
During any actual crisis, savers discover that their money is worthless unless there is an express or implied government guarantee. For this reason, every bank deposit draws one. Additionally, the value of bitcoins has usually plummeted after stressful events because ordinarily optimistic savers abruptly start to flee. The digital counterpart of a bank deposit run is this.
Reserve Bank of Australia and Policy Failures
This leads us to the most recent disaster at the Reserve Bank of Australia. The questionable distinction of being the world’s first central bank to raise interest rates after lowering them following the pandemic belongs to Martin Place. This is a clear acknowledgement that it has fallen short of its price stability goal.
It looks like the organization is under attack. Governor Michele Bullock declined to acknowledge in testimony to parliament on Friday that reckless government spending in the shape of massive budget deficits that are stifling productivity in both the public and private sectors is Australia’s single largest cause of inflation.
The exceptionally dovish RBA leadership, which was hand-picked by Treasurer Jim Chalmers, disregarded findings from its own internal staff that suggested raising the cash rate to 5% in 2023 or 2024 to keep pace with peers around the world.
🏦 RBA Interest Rate Update
- Current Cash Rate: 4.35%
- Policy Shift: Rate hike after pandemic cuts
- Reason: High core inflation & poor forecast accuracy
- Impact: Challenges credibility & affects investor confidence
Instead, they maintained the cash rate at a far more stimulating 4.35 percent, justified by a desire to see if the economy could function with record low unemployment without creating intolerable inflationary pressures.
This practice ultimately led to last year’s ridiculously high core inflation of 3.4%, which was significantly higher than the RBA’s 2.6% prediction. Bullock’s parliamentary testimony, according to one seasoned interest rate analyst, was “shabby dissembling.”
According to this person, “she refuses to admit that government spending is adding to inflation pressures in a frantic attempt to avoid criticizing her political bosses.”
Bullock undermined the impact of her own policy change by refuting the idea that it signaled the start of a tightening cycle, as it has always done.
Usually, central bankers make these changes to announce a change in direction and to set a new tone for the country. Because these announcement effects force markets to modify their expectations for future rate increases, they can have a significant effect on activity.
When asked if monetary policy was currently in a tightening cycle by David Taylor of the ABC, Bullock said that she did not “know if it is in a cycle,” characterizing it as “an adjustment.” On the whole, this has been the mother of all backflips, and this was a very strange understatement.
Naturally, there was no compromise on the RBA’s significant forecast errors for inflation, growth, and employment. Since 2021, inflation has not been in line with the RBA’s inflation objective, and there was no accountability for this.
There was no acknowledgement of the RBA board’s mistake in disregarding the staff’s recommendation for a stricter 5% cash rate and dismissing their understanding of the natural rate of unemployment that is consistent with target inflation.
Bullock attempted to discredit the RBA by saying that it was “the same tactic” when launching a fresh hiking cycle. At least three times, she reiterated the “identical strategy” remark. The majority of people would view rate hikes and cuts as radically different strategies for controlling inflation.
Bullock responded, “No, I would not say that at all… I think it was completely appropriate,” when asked if the RBA was premature in starting its easing cycle last year, as we now know it was. The sanctimony and arrogance of the RBA are limitless.
Bullock stated that she would require at least two quarters of mild inflation data before opting to implement a rate drop right before a federal election. However, weeks later, Bullock rejected her own reasoning and abruptly changed her mind to believe that a quarter of the data would be adequate, foreshadowing the crucial rate drop in February that gave Labor’s campaign a significant boost.
The RBA has only approached its 2.5% objective once in the last four years, with that one weak December-quarter reading. According to Kieran Davies, chief macrostrategist at Coolabah, “the late 2025 inflation readings were one of the greatest RBA projected failures in decades.”
The RBA should have given greater thought to how these misses would affect its forecasting techniques and underlying policy assumptions, in my opinion. However, they quickly defend rate decreases from the previous year and then claim that rising inflation is largely a passing phenomenon.
At the moment, the RBA has no idea what it is doing. Its political masters’ desires and the hard data-imposed policy restrictions are at odds with one another. Its credibility is the casualty.
Frequently Asked Questions
1. What is the “re-dollarization” trade, and how does it impact bitcoin and gold?
The term “re-dollarization” describes the US dollar’s comeback as the world’s most valuable currency, fueled by the country’s stronger economy and tighter monetary policy. Alternative value stores like gold and bitcoin become less appealing as the dollar appreciates, which lowers their prices.
2. What caused the recent steep decline in gold and bitcoin?
The appointment of Kevin Warsh, a well-known inflation hawk, as the new Fed chair caused the decline. As a result of investors’ forced adjustment to the expectation of looser monetary policy and increased inflation, demand for gold and bitcoin as alternative savings options declined.
3. Is bitcoin a trustworthy inflation hedge?
No, because of its extreme volatility, Bitcoin has traditionally increased the danger of a decline when interest rates have increased. It is an unreliable inflation hedge since it lacks inherent value, official support, and broad use as a means of exchange.
4. What effect do increases in interest rates have on cryptocurrencies?
Cryptocurrencies are less appealing as alternative wealth vaults when interest rates are higher because cash deposits and conventional savings are more alluring. Similar to a bank run, investors typically flee cryptocurrency during times of crisis.
5. What does the recent behavior of the Reserve Bank of Australia (RBA) suggest?
The RBA’s rate increases following previous reductions serve as a reminder of poor forecasting, political meddling, and policy errors. Its credibility has been undermined, demonstrating the challenge of striking a balance between political pressures, economic expansion, and inflation targets.
Conclusion
Global financial markets are changing as a result of tighter monetary policies and the re-dollarization trend. Once viewed as protections against inflation and the decline of the currency, gold and bitcoin are now seeing sharp declines. Especially when interest rates are rising, cryptocurrencies continue to be unstable and unreliable as repositories of value.
As they attempt to balance inflation, economic, and political expectations at the same time, central banks such as the RBA are facing increasing challenges to their credibility. It serves as a reminder to savers that traditional, government-backed assets continue to provide the highest level of protection during uncertain times.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a professional before making investment decisions.
