CBDCs Will End Global US Dollar Dominance: JP Morgan

Trade settlement and SWIFT system will be impacted the most.

JP Morgan Chase, in a recent report, warned against the negative impact of central bank digital currencies (CBDC) on the dominance of the US dollar in the world economy, Bloomberg reported on Friday.

The Chinese central bank has already put its digital yuan into trial while many other major monetary regulators are also seriously considering issuing a digital currency.

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Though the digital currencies would impact many fiats, it would disrupt the geopolitical dominance of the US dollar.

“There is no country with more to lose from the disruptive potential of digital currency than the United States,” multiple analysts of the bank, including Josh Younger, head of U.S. interest-rate derivatives strategy and Michael Feroli, chief U.S. economist, stated in the report.

The two most impactful areas where such CBDCs can hurt the US dollar are the trade settlement and SWIFT messaging system.

The report also highlighted that even the European regulators want to reduce the dominance of US dollars from the global payment system – in 2018 SWIFT suspended the access of multiple Iranian banks following US sanctions and the move might have violated EU laws.

If the countries can circumvent the SWIFT system, it would be very hard for the US to put international sanctions and terrorist-financing enforcements.

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“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,” the report added.

No transformative impact on the financial system

According to JP Morgan, there are reasonable cases for the central bank to introduce digital currencies, but there might not be any transformative impact.

The bank also believes that the global dominance of the US dollar cannot be toppled overnight, the key areas remain “most fragile.”

“Offering a cross-border payments 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,” the report added.

Meanwhile, Goldman Sachs also arranged a conference call for next Wednesday to discuss the policies around “inflation, gold, and Bitcoin.”

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