The U.S. has the most to lose if central bank digital currencies (CBDC) take off, according to a new report by JPMorgan.
A number of central banks, most prominently China's, are aggressively pursuing CBDC systems. If these currencies are able to get traction, that could undermine America's geopolitical power, argued JPMorgan analysts Josh Younger and Michael Feroli.
The dollar is unlikely to lose its spot as the world's reserve currency any time soon, they argued. But other aspects of the dollar's dominance — including trade settlement and the SWIFT messaging system — are “more fragile," Younger and Feroli argued in the report, which was first covered by Bloomberg.
“There is no country with more to lose from the disruptive potential of digital currency than the United States,” they wrote. “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.”
If those advantages are lost, Feroli and Younger argued, the U.S. would have a hard time enforcing economic sanctions and policing terrorist financing. The U.S. currently has no plans to issue a CBDC, but the analysts suggested that a "cross-border payments solution built on top of a digital dollar" might be "a very modest investment to protect a key means to project power in the global economy."
They concluded: "For high-income countries and the U.S. in particular, digital currency is an exercise in geopolitical risk management."