According to a recent Harvard University paper, central banks in countries that carry the risk of US sanctions could update their international reserves to include bitcoin (BTC).
The idea of central bank risk hedging with bitcoin was based on a study that found that several central banks, especially those at higher risk of US sanctions, had raised the share of their gold reserves in recent years.
The author claims that having a BTC allocation as well as gold will increase these nations’ resilience to sanctions. The author stated that this is particularly true when the country finds it difficult to obtain enough physical gold.
Matthew Ferranti, a PhD candidate in economics at Harvard University, is the author of the recently released research paper titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves.” Ferranti wrote:
“The ability of fiat reserve issuers to freeze transactions, which constitutes a form of de facto default on the underlying obligations, calls into question fiat reserve currencies’ status as ‘safe haven’ assets.”
Ferranti brought up the suspension of Russia’s global central bank reserves following its invasion of Ukraine as an instance of why this subject is more crucial than ever in the paper.
The author also mentioned how beneficial a proof-of-work digital asset such as bitcoin is for hedging sanctions.
This condition is not practical, the paper continued, “because of the massive amount of computational power allocated to Bitcoin mining, in addition to the volume of energy needed to operate the mining chips”.
Since a huge quantity of computing power allocated to Bitcoin mining is required, the paper stated that it is unfeasible to get to that status.
Ferranti concluded by stating that while no asset is completely safe from sanctions, cryptocurrencies such as bitcoin can provide partial protection, albeit with more volatility.
