Bitcoin Can Be Used by Central Banks to Fight Off Sanctions, Harvard Research Shows

von Eva Fox November 24, 2022

Bitcoin Can Be Used by Central Banks to Fight Off Sanctions, Harvard Research Shows

Image: BeInCrypto

According to a Harvard University study, central banks may use Bitcoin to fight off sanctions. Matthew Ferranti, a Ph.D. candidate at Harvard, pointed out that Bitcoin is an optimal alternative hedging asset for central banks.

A research paper published at Harvard university highlighted how central banks can use Bitcoin to hedge against financial sanctions from fiat reserve issuers, reports Cointelegraph. The paper titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves,” released by Matthew Ferranti, a Ph.D. candidate at the university’s economics department, explored the potential of Bitcoin as an alternative hedging asset for central banks to fight off 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 their gold reserves.

In the paper, he 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.

© 2022, Eva Fox | Tesmanian. All rights reserved.

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