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| Cryptocurrency could challenge the dominance of the US dollar |
According to a new research report from the Federal Reserve, the US dollar is expected to continue to lead the global market, but a rapid rise in cryptocurrencies could threaten this position.
Federal Reserve economists Carol Bertott, Bastian von Beschwitz and Stephanie Corcoru write in their article “The International Role of the US Dollar” that digital currencies such as Bitcoin and state-sponsored currencies can reduce dependence on the US dollar.
They indicate changing consumer and investor preferences, and new products can change the relationship between perceived costs and benefits.
Technology alone is unlikely to change the pattern enough to offset the long-term reasons behind the dollar's dominance.
This research report is being released because the Federal Reserve is expected to release a highly anticipated separate report on whether the United States should issue central bank digital currencies anytime soon.
But senior Federal Reserve officials have different views. While Federal Reserve Chairman Jerome Powell has expressed a degree of openness to central bank digital currencies, other Fed officials such as Vice Chairman Randall Quarles are skeptical.
Quarles said in July that while public interest in the digital dollar has peaked, the dollar is highly digitized and is serving the country and the economy well.
In addition to digital currencies. The Federal Economists' research report highlights two other challenges that may affect the global dollar's position in the near future.
The rapid rise of cryptocurrencies threatens the dominance of the US dollar
You said the first is the continued integration of Europe, which is a large economy with strong institutions and free trade. Economists noted that at the height of the pandemic, the European Union decided to issue bonds backed by funds.
They added: With the progress of financial integration and the development of a large liquidity market for European bonds, the euro could become more attractive as a reserve currency. This integration can be accelerated by improving the infrastructure of the EU government bond market and by introducing the digital euro.
Economists said another potential risk is China's accelerated growth. The country's nominal GDP is expected to exceed that of the United States by 2023.
However, they are optimistic that the US dollar will remain attractive. They added: For the foreseeable future, the US dollar may remain the world's most important currency. In the absence of large-scale political or economic changes that would affect the value of the US dollar as a store of value or as a medium of exchange.