A research paper published at Harvard University outlines how central banks can use Bitcoin (BTC) to protect against financial sanctions from reserve fund issuers.
Working Paper titled “Hedging Sanction Risk: Cryptocurrency in Central Bank Reserves” published by Matthew Ferranti, Ph.D. PhD in economics at the university, explored the potential of Bitcoin as an alternative hedge asset for central banks to guard against potential sanctions.
Ferranti argued that it makes sense for central banks to hold a small amount of bitcoin even under normal circumstances. However, when there is a risk of sanctions, the researcher said it makes sense to keep most of the BTC along with your gold reserves.
In the paper, the researcher also pointed out that countries that were at risk of sanctions from the US increased the share of their gold reserves much more than countries that were at lower risk of sanctions. If these central banks cannot purchase enough gold to hedge 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 encourage the diversification of central bank reserves, strengthening the value of cryptocurrencies and gold. Ferranti concluded that there are significant benefits to diversifying reserves and allocating parts in both bitcoin and gold.
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