Digital currencies could threaten US geopolitical power, warns JPMorgan

„No country has more to lose from the disruptive potential of digital currencies than the United States.“

So warn analysts at the largest U.S. bank, JPMorgan Chase, in a new report covered by Bloomberg News on May 22.

The authors of the report – including JPMorgan’s head of U.S. interest rate derivatives strategy Josh Younger and U.S. chief economist Michael Feroli – wrote:

„This mainly revolves around the hegemony of the US dollar. The issuance of the world’s reserve currency and the medium of exchange for international trade in commodities, goods and services brings immense advantages.

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The most fragile links in the global dollar system
While analysts do not anticipate that the dollar will soon lose its status as the world’s reserve currency, they pointed to some of the weakest links in the currency’s dominance, such as trade settlement and the SWIFT messaging system.

SWIFT in particular was a key lever in imposing sanctions on the Iranian regime, aligning itself with the U.S. administration and suspending access to Iranian banks in 2018. This caused tension with the European bloc, where finance ministers had tried – and eventually failed – to exempt the cross-border payments network from restrictions. Some argue that the suspension of SWIFT violated European Union laws.

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in the country
JPMorgan points out that if countries could circumvent the suspension of SWIFT, the United States would be less able to achieve its strategic geopolitical goals, which are based in part on the global dominance of the dollar.

Analysts say taking the lead on digital currencies is key for the United States
For the US in particular, the bank stressed that „digital currency is an exercise in geopolitical risk management“.

However, managing this risk does not necessarily exclude a digital currency component. Analysts said:

„Offering a cross-border payment solution built on a digital dollar would be, especially if designed to minimally disrupt the structure of the domestic financial system, a very modest investment in protecting a key means of projecting power in the global economy.“

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Cointelegraph has previously reported on the similar views of Judy Shelton, one of President Donald Trump’s nominees for the United States Federal Reserve Board of Governors.

Shelton has advocated the potential of a future digital dollar to help „preserve the primacy of the dollar around the world“ and an option she believes the U.S. is „obliged to think about.