Analysts at the biggest multinational Investment bank in America, JPMorgan, have warned that the concept of central bank digital currencies or CBDCs, could undermine the geopolitical power of the United States. This was disclosed in a Bloomberg post on May 22.
Bank digital currencies set dollar dominance at risk
Notably, the idea of bank digital currencies have gained traction recently, as many central banks have shown interest in developing them, while China has already begun trials. The US government ought to watch the developments closely or face the possibility of seeing the primary driver of its geopolitical influence undermined, as per JPMorgan.
Precisely, the US chief economist, Michael Feroli, and the head of the American interest-rate derivatives strategy, Josh Younger, issued the warning. They said that America is the top country on the list to lose out more influence via the disruptive possibilities related to the concept of bank digital currencies.
Although the analysts do not think that bank digital currencies could topple the greenback as the leading reserve currency in the near future, they believe there is a whole lot more to the potential effect. Per the report, most of the critical part of dollar dominance at risk include the SWIFT messaging, and also the trade settlement.
A more in-depth explanation by the analysts suggests that the circumvention of the US dollar domination, as well as the SWIFT system by other nations, will negatively affect the US authority to sanction many countries, as well as to fight terrorist financing.
The US could opt to create a digital dollar
Conclusively, the supposed risks of bank digital currency seemingly revolve around the domination of the US dollar. Although the analysts think that public assumptions on bank digital currency are unlikely not the case, they added that there are criteria to be followed before CBDCs are created.
Meanwhile, the analysts suggested to the US authorities:
Offering a cross-border payment solution built on top of a digital dollar would, particularly if designed to be minimally disruptive to the structure of the domestic financial system, be a very modest investment to protect a key means to project power in the global economy.
