JPMorgan: Digital Currencies Threaten US Financial Dominance

Reading Time: 2 minutes
  • National digital currencies threaten certain aspects of US financial dominance
  • Alternative digital system could allow other countries to bypass US-dominated SWIFT system
  • US needs to work on a national digital currency in order to prevent dilution of power

JPMorgan has warned that the US has the most to lose from an uptake in national digital currencies, with the dollar’s place as the world’s reserve currency at risk. In a report seen by Bloomberg, analysts from the bank warn that certain elements of dollar dominance, such as within trade settlements and the SWIFT messaging system, could be threatened if other, more attractive digital currencies become available.

“No Country with More to Lose” than US

JPMorgan states in the report, which has not been publicly published, that there is “no country with more to lose from the disruptive potential of digital currency than the United States”. The US dollar has enjoyed hegemony over most aspects of the global financial system since its emergence from World War II as the next economic powerhouse, and the bank is clear to state that the dollar itself is not at risk of being toppled, at least not in the immediate future.

Instead it points to the potential desire by European nations to reduce the influence of the US within global payment systems, and the creation of digital currencies may present an opportunity to do this. Developing a competing system to SWIFT would allow other nations to circumnavigate the 47-year old company and the associated political pressures that come with being part of it, such as when SWIFT suspended access for some Iranian banks in 2018 under pressure from the US, which some European nations argue might have violated EU laws.

US Needs to Ramp Up Work on Digital Dollar

The report states that the only way the US can protect its interests in this matter would be by developing a digital currency based on the dollar, with many countries preferring this solution as being less disruptive:

Offering a cross-border payments solution built on top of a digital dollar would, particularly if designed to be minimally disruptive to the structure of the domestic financial system, be a very modest investment to protect a key means to project power in the global economy.

The US has already hinted that it is exploring the potential of a digital dollar, particularly in the wake of Facebook’s plans for its Libra cryptocurrency, but nothing concrete has come from this so far. Other countries are making much more rapid progress however, such as in France where Banque de France is testing up to 10 different means of exchanging digital currencies.