• Harvard University student Matthew Ferranti has proposed that central banks add BTC to their reserve assets.
• According to the economics department Ph.D. candidate, BTC could be a better sanctions hedge than gold. 

A new Harvard University working paper has expressed support for the idea that central banks should buy Bitcoin (BTC) as a reserve asset. The author of the paper, Matthew Ferranti, argues that it makes sense for countries to hold small amounts of Bitcoin to diversify the composition of their central bank reserves.

In the paper titled “Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves” the Harvard Economics Department Ph.D. candidate stated that the issue is pertinent because the ‘safe haven’ asset status of fiat reserve currencies have been losing credibility.

He added that this is especially so with the increasing number of cases of sanctions in which fiat reserve currency issuers like the U.S. and their allies freeze transactions through sanctions causing a de facto default on the underlying obligation. He wrote in the paper;

The ability of fiat reserve issuers to freeze transactions, which constitutes a form of de facto default on the underlying obligations, calls into question fiat reserve currencies’ status as ‘safe haven’ assets,

In an interview with the news outlet Politico, he explained further that the addition of BTC to central banks’ reserves would help countries adequately hedge their sanctions risk. He noted that BTC is a lot easier to use as a sanction hedge than gold which many consider the ideal safe haven asset as it is less volatile than cryptocurrencies.

And if you can’t get enough gold to hedge your sanctions risk adequately — think about a country that has very poor infrastructure, doesn’t have the capability to store large amounts of gold, or countries whose reserves are so large that they simply cannot buy enough gold. Places like Singapore and China. You can’t just turn around and buy $100 billion of gold,

Central banks still largely focused on CBDCs

While the paper is yet to be peer-reviewed, it is likely to not be dismissed by the academic community and policymakers going by Ferranti’s history. Ferranti is an advisee of Kenneth Rogoff, the Harvard professor who was once chief economist at the International Monetary Fund (IMF).

At present, only El Salvador which made Bitcoin legal tender last year has been adding the cryptocurrency to their central bank reserve. Their move has notably gotten mixed reception as the country has seen its Bitcoin holdings fall to less than 60 percent of the value it was bought at according to a Bloomberg report.

Meanwhile, the majority of central banks’ blockchain technology adoption focus has been on introducing central bank digital currencies (CBDCs). Per data from CBDC Tracker, over 100 central banks are at various stages of CBDC development.