Central bank digital currencies (CBDC) is a threat to the US dollar, JP Morgan analysts have argued. According to them, the dollar ran the risk of losing ts geopolitical hegemony if the launch of CBDC prevailed.
The analysts were Josh Younger, the head of the US interest-rate derivatives strategy, and Michael Feroli, chief US economist. They were of the opinion that if the launch of CBDC took place, the US had the most to lose.
According to a Bloomberg report, CBDC could effectively displace the dollar’s economic supremacy and become a new global reserve currency. It warned that this could result in forfeiting trade settlement and the SWIFT messaging system which are “more fragile”.
“This revolves primarily around US dollar hegemony. Issuing the global reserve currency and the medium of exchange for international trade in commodities, goods, and services convey immense advantages,” the report noted.
The analysts argued that even the European Union (EU) might want to reduce US economic sway over global payment systems. They pointed out the instance of SWIFT suspending access for some Iranian banks in 2018 in violation of EU laws.
The US should launch a digital dollar
Feroli and Younger advised that the US government create a cross-border payment solution built on top of a digital dollar. This move would be ideal for the dollar to maintain its spot as a major geopolitical economic power.
“For high-income countries and the US in particular, digital currency is an exercise in geopolitical risk management,” it noted.
It further added that allowing other countries’ CBDT to take off first could lead to the US losing a lot of relevance. It would undermine their ability to act and place sanctions on a global level. As a result, it could hamper the curtailing of terrorist-financing enforcement and also impact on securing its economic interest globally.
Incidentally, the Federal Reserve chairman, Jerome Powell, had earlier mentioned looking into the issues of CBDC. However, he made no commitment to the establishment of any digital currency.
Others attempting to launch CBDC
While, China is top on the list of countries vying for the launch of a CBDC, several other countries and global institutions are also warming up towards the idea.
Recently, the Bank of England (BoE) alongside several other initiatives disclosed they were considering launching CBDC. Similarly, the Bank of International Settlement, Bank of Canada, the European Central Bank, the Swiss National Bank, Bank of Japan, and Sveriges Riksbank are all looking into the feasibility of a CBDC launch. Africa is not left out of the mix as several African countries have hinted at a possible launch of national digital currency.
It is important to note that CBDC is quite different from other digital currencies like Bitcoin, Ethereum, Litecoin, Monero, etc. Government financial agencies as well as its designated institutions will have the sole jurisdiction in issuing CBDC. Moreover, the acceptance of the fact that digital currency is necessary is on the rise. Recently, Visa applied for a patent with the US Patent and Trademark Office to replace cash with digital currencies and boost its entire payment ecosystem.