Central banks in countries that face the risk of being sanctioned by the US may move their international reserves to include bitcoin (btc)a new harvard university Research Paper Argued.
The research paper on hedging central bank risk with bitcoin is based on the idea that many central banks – and especially those facing a high risk of US sanctions – have increased the share of their reserves held by gold in recent years. , a traditional central bank reserve asset.
According to the author, adding a BTC allocation in addition to gold would further increase resilience against sanctions in these countries. This is especially true in cases where countries struggle to acquire enough physical gold, the authors argued.
title Hedging Ban Risk: Cryptocurrencies in Central Bank ReservesThe newly published research paper is authored by Matthew Ferranti, a PhD candidate in economics at Harvard University.
Ferranti wrote, “The ability of fiat reserve issuers to freeze transactions, which is a form of de facto default on the underlying obligations, calls into question the status of fiat reserve currencies as a ‘safe haven’ asset.”
Ukraine War Could Make Central Banks More Interested in Bitcoin
In the paper, Ferranti points to Russia’s freezing of international central bank reserves following its invasion of Ukraine as an example of why this question is more relevant now than ever.
,[…] It is time to explore the question of how, and to what extent, the risk of financial sanctions can induce changes in central bank reserve composition,” the PhD candidate noted in the paper.
Proof-of-Work is censorship-resistant
Ferranti also noted in his paper that bitcoin, as a proof-of-work-based digital asset, is particularly useful as a clearance hedge.
“Under a proof-of-work system, the ability to censor transactions on a blockchain requires achieving ‘majority hash power’, meaning that the censor must have at least 51% of the computing power employed by all miners. % should be controlled,” the paper said.
It added that “it is not possible to achieve such a situation due to the amount of computing power dedicated to bitcoin mining, as well as the amount of electricity required to power the mining chips.”
Finally, Ferranti acknowledged that no asset is “completely safe” in the presence of sanctions, but that cryptocurrencies such as bitcoin can provide “some protection,” although that safety comes with high volatility.
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