For decades, due to the power that the U.S. wields in finance and in war, the U.S. dollar has been the reserve currency for the world. A majority (if not all) central banks hold the currency, a majority of global commerce involves the transaction of greenbacks, and the U.S. dollar has performed extremely well over many foreign currencies over the past few decades.
Yet a new report from JPMorgan Chase & Co. indicates that the long unquestioned dominance of the U.S. dollar will soon be threatened by the rise of central bank digital currencies.
JPMorgan: Central Bank Cryptos Threaten U.S. Dollar’s Reserve Currency Status
According to Bloomberg, analysts at the multinational bank said in the report that the introduction of digital currencies by big central banks will potentially threaten the efficacy of the U.S. dollar in global commerce. They wrote:
“There is no country with more to lose from the disruptive potential of digital currency than the United States. This revolves primarily around U.S. dollar hegemony. Issuing the global reserve currency and the medium of exchange for international trade in commodities, goods, and services conveys immense advantages.”
JPMorgan did say that it is unlikely the U.S. dollar will be toppled as the world’s reserve currency anytime soon, though it’s likely disruptions will take place in certain sectors where digital currencies make sense over dollar systems — such as the SWIFT payment network, which is slow and costly compared to newer digital tech.
A Timely Report
JPMorgan’s report is very timely: the past few months have seen the fundamental case for central bank digital currencies gain strength due to the outbreak of COVID-19.
An April 3rd bulletin from the Bank of International Settlements — the so-called “central bank of central banks” — indicated that COVID-19 is accelerating the world’s distaste for cash payments, making CBDCs that much more logical:
“Resilient and accessible central bank operated…