A Harvard PhD candidate in their fifth year has encouraged central banks to include Bitcoin (BTC) in their reserves to mitigate sanctions risk.
PhD candidate Mathew Ferranti released a thesis that has sparked a little stir among Bitcoin supporters by urging governments to include the asset class in their reserves. In a paper titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves,” Ferranti presents a compelling argument for sanction-prone states to keep BTC.
The use of digital assets to circumvent sanctions has been a heavily debated subject in recent years, with the conversation reaching a fever pitch following Russia’s invasion of Ukraine. In the days after the invasion, Western countries hit Russia with economic and financial penalties that, according to estimates, may reduce the country’s GDP by as much as 6%.
Since then, the Russian central bank and the Ministry of Finance have indicated that virtual currencies would be used to simplify international transactions.
However, the research warns that concentration in the digital asset business might be a barrier to employing this asset class to evade sanctions. In March, Coinbase, Gemini, and Binance acceded to U.S. law enforcement authorities requests that they notify any transactions involving sanctioned Russian persons or businesses.
The research by Ferranti does not address the efficacy of sanctions, but it does mention that they may have unexpected repercussions, such as harming the people of the sanctioned nation.
In the broad scheme of things, Gulf states are among the most severely sanctioned in the world. Despite a preference for digital assets and distributed ledger technology (DLT), states have been hesitant to include them on their balance sheets.
Currently, only El Salvador’s financial sheet has over 3 000 BTC. The U.S. has imposed a significant number of sanctions on the Central American country, with officials and companies suffering severe embargoes.
The study by Ferranti indicates that sanctioned nations are placing their trust in gold rather than Bitcoin. He mentions the increase in the number of Gulf states stockpiling gold but notes that “you can’t simply turn around and purchase $100 billion of gold,” so some governments may amass gold.
According to Ferranti, the optimal mix will consist of both assets for diversification purposes. Ferranti said that he likes central banks to favour gold “because it is five times less volatile than Bitcoin.
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