“No country has more to lose” than the United States as central bank digital currencies (CBDCs) begin to roll out, claims US-based investment bank giant JPMorgan – suggesting that a “modest” digital fiat investment may help maintain the dollar’s dominance in the coming years.
Per Bloomberg, JPMorgan claims that the United States is currently in a very favorable position, with the world using the dollar as the global reserve currency. However, as advances in digital currencies continue to grow, especially in China and Europe, but also in South Korea and other areas, the dollar’s dominance may be affected.
The media channel says that Josh Younger, head of JPMorgan’s US interest rate derivatives strategy, and chief American economist Michael Feroli, co-wrote a report claiming:
“There is no country that has more to lose from the disruptive potential of digital currencies than the United States. Issuing the global reserve currency and medium of exchange for international trade in raw materials, goods and services brings enormous benefits. ”
However, instead of hitting a quick punch, JPMorgan says the dollar’s dominance is likely to be more subtly undermined if and when CBDCs roll out elsewhere in the world.
The threats in particular were, according to the analysts, “more vulnerable” aspects of the dollar dependence model, with trade agreements and the SWIFT payment system appearing to be vulnerable.
The EU, which could look to the digital euro issuance as the French-led plans come about, could try to distance itself from US economic dominance, analysts arguing that SWIFT’s suspension of access to a number of Iranian-based banks in 2018 breached EU law.
SWIFT’s position would look increasingly precise if digital currencies became the norm in major economies, meaning it would be more difficult for the United States to impose economic sanctions on companies, individuals and states.
The report reflected views previously expressed by many central banks, as the authors wrote:
“Digital currencies are an exercise in geopolitical risk management, especially for high-income countries and the United States.”
The United States Federal Reserve has admitted that it is investigating the possibility of digital dollar issuance, but has so far been relatively non-committal – despite calls from some politicians who want an American CBDC to fight an upcoming pandemic-induced coronavirus slump.
The authors offered reasoning, writing,
“Offering a solution for cross-border payments on top of a digital dollar, especially if designed to minimize the disruption of the structure of the domestic financial system, would be a very modest investment to protect an important means of power in the global economy to project. ‘
JPMorgan analysts concluded that “reasonable arguments need to be made” for central banks to introduce digital fiats, but CBDCs were unlikely to have the transformative impact that some people had previously predicted.
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