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According to a new research paper released by the Federal Reserve, the rapid rise of digital currencies and cryptocurrencies could threaten the continued dominant role of the US dollar in global markets.
Cryptocurrencies like Bitcoin, along with government-backed digital currencies, can reduce reliance on the U.S. dollar, as Federal Reserve economists Carol Bertout, Bastian von Beschwitz, and Stephanie Corcoru wrote in their article titled “The international role of the US dollar”. according to Al-Bawaba for new techniques.
They indicate a change in consumer and investor preferences, while new products may shift the perceived balance of costs and benefits.
“Technology alone is unlikely to change the landscape enough to offset the long-term causes of the dollar’s dominance,” the newspaper added.
The research paper comes as the Federal Reserve is expected to release a separate report soon on whether the United States should issue a central bank digital currency.
But senior Federal Reserve officials disagree. While Fed Chairman Jerome Powell has shown some openness to central bank digital currencies, other Fed officials such as Vice President Randall Quarles have been more skeptical. .
Quarles said in July that while public interest in the digital dollar is at its peak, the US dollar is “highly digital” serving the nation and the economy.
In addition to cryptocurrencies, the Federal Economists’ document highlights two other short-term challenges that could affect the international situation of the US dollar. The first, they said, is the continued integration of Europe, a large economy with strong institutions and free trade. Economists in particular have highlighted the European Union’s decision to issue jointly backed debt at the height of the pandemic.
They added: “If financial integration progresses and a large and liquid market for EU bonds develops, the euro may become more attractive as a reserve currency. This integration could be accelerated by improving the infrastructure of the EU sovereign debt market and the introduction of the digital euro. “
The other potential risk, economists say, is China’s accelerated growth. It is a country whose GDP is expected to exceed that of the United States in nominal terms by 2023.
However, they are optimistic that the US dollar remains attractive. They added, “The dollar will likely remain the dominant global currency for the foreseeable future. In the absence of any large-scale political or economic changes that would harm the value of the US dollar as a store of value or medium of exchange. “
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