A research paper published by Harvard University highlighted how central banks can use Bitcoin (BTC) to hedge against financial penalties from fiat reserve issuers.
Working paper entitled “Risk of Hedging Sanctions: Cryptocurrency in Central Bank Reserves” released Matthew Ferranti, a PhD candidate in the university’s Department of Economics, explored the potential of bitcoin as an alternative hedge asset for central banks to counter potential sanctions.
Ferranti argued that central banks hold small amounts of bitcoin even under normal circumstances. However, if there is a risk of sanctions, the researcher said it makes sense to hold a larger portion of BTC along with their gold reserves.
In the paper, the researcher also pointed out that countries that faced the risk of sanctions from the United States increase the share of their gold reserves much more than countries that had less risk of sanctions. If these central banks cannot acquire enough gold to cover the risks of sanctions, the researcher argued that bitcoin reserves are the optimal alternative.
In addition, the researcher believes that the risk of sanctions may eventually spur the diversification of central bank reserves and boost the value of cryptocurrencies and gold. Ferranti concluded that there are significant advantages to diversifying reserves and allocating portions of both bitcoin and gold.
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