According to the latest report released by JPMorgan Chase & Co., the United States in particular needs to pay attention to the idea of central bank digital currencies (CBDCs), or risk losing a major aspect of its geopolitical power. The analysts noted in their report that the U.S. stands to lose the most from the disruptive potential of CBDCs.
According to the Bloomberg report, the analysts argue that some aspects of the dollar’s dominance including trade settlement and the swift messaging system are more fragile with the disruption of CBDCs. However, they still believe that the dollar is unlikely to lose its position as the world’s reserve currency anytime soon.
They wrote in the report that:
“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”.
According to the analysts, if the U.S. loses those advantages, the country would face difficulties enforcing economic sanctions on other nations, and policing terrorist financing. The U.S. currently has no plans of issuing a digital dollar anytime soon. However, the analysts suggest that a cross-border payments solution, built on top of a digital dollar, might be a very good investment means to protect its power in the global economy.
Overall, the analysts believe that it is reasonable for central banks to introduce digital currencies, though they might not have the transformative impact some have hoped. However, for high-income nations, particularly the U.S., the analysts argue that digital currency is an exercise in geopolitical risk management. Meanwhile, the deputy governor of the bank of Japan, Masayoshi Amamiya recently argued that advanced economies do not need a digital currency.