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Thursday, January 26, 2023

Central Bank Digital FX a Danger to America – JPMorgan

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The rise of digital currencies is a threat to the United States geopolitical power, according to JPMorgan Chase & Co.

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

Overall, there’s a reasonable case to be made for central banks to introduce digital currencies, the analysts wrote, adding that they’re unlikely to have the transformative impact some have hoped.

JPMorgan said aspects of dollar dominance, including in trade settlement and the SWIFT messaging system, could be at risk. If other countries were able to circumvent the SWIFT system and the dollar’s domination, it would be much more difficult for the U.S. to carry out its goals in sanctions and terrorist-financing enforcement, the report said.

“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,” they said. “For high-income countries and the U.S. in particular, digital currency is an exercise in geopolitical risk management.”

JPMorgan CEO Jamie Dimon has in the past been negative on crypto-currencies especially Bitcoin.

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