A Harvard University research highlighted the use of Bitcoin by central banks as a financial hedge against fiat reserve issuer financial fines.
Matthew Ferranti, a Ph.D. candidate in the university’s economics department, examined the possibility of Bitcoin as a substitute hedging asset for central banks to fend off prospective penalties in a working paper titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves.”
The researcher noted in the report that nations with a higher risk of US sanctions had been raising the percentage of their gold reserves far more than those with a lower risk of penalties. It stated that Bitcoin reserves are the best fallback if these central banks are unable to accumulate enough gold to cover the risks associated with the sanctions.
In addition, the researcher thinks that the possibility of sanctions may eventually encourage central banks to diversify their reserves, raising the value of cryptocurrencies and gold. Ferranti concluded that diversifying reserves and allocating some to both Bitcoin and gold have significant advantages.
Ferranti concludes that the economic sanctions imposed by the West on Russia have permanently altered the considerations for central banks. As a result, US Treasuries, which were once seen as a shelter even by America’s adversaries, are no longer considered sacred.
It is not very novel for everyone to consider buying Bitcoin in case it catches on, even central banks. Ferranti, however, is the first to assess the potential magnitude of central banks’ crypto investments.
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