Bitcoin

An economist believes that bitcoin is a reserve asset similar to gold and points out that some central banks may consider adding it to their reserves.

Economists boldly suggest: Bitcoin can protect central banks like gold.

The non-profit think tank Bitcoin Policy Institute (BPI) published an article by economist Matthew Ferranti last week entitled 'The Case for Bitcoin as a Reserve Asset'. The paper examines the potential of Bitcoin as a central bank reserve asset, comparing its crisis resilience to that of gold. BPI focuses on educating policymakers and the public about Bitcoin and other disruptive digital technologies.

Ferranti detailed in his paper:

I believe bitcoin is a reserve asset - similar to gold in some ways - some central banks may consider adding bitcoin to their reserves.

Ferranti pointed out that while El Salvador is currently the only country officially holding bitcoin as a reserve asset, amid global financial tensions and escalating sanctions, other countries may be quietly exploring similar strategies.

In addition to its crisis hedging properties, Ferranti believes BTC offers a diversified advantage that may help address inflation, sanctions, and global economic chaos. He noted that bitcoin's strong structure makes it more difficult to counterfeit than gold, its limited supply functions as an inflation hedge, its liquidity meets transactional demands, enhancing its appeal as a reserve asset. Furthermore, Ferranti believes that bitcoin's resilience to sanctions may be advantageous for countries facing geopolitical challenges.

However, Ferranti advises caution and points out that "bitcoin and gold may not necessarily be suitable for every central bank, offering specific investment advice beyond the scope of this article." He adds that "in addition to the factors discussed here, several factors influence the currency composition of central bank reserves," emphasizing the importance of each country's unique economic situation and currency needs. Economists conclude:

Bitcoin has unique investment qualities that can support central banks in diversifying against a range of risks such as inflation, geopolitical tensions, capital controls, sovereign debt, banking instability, and financial sanctions. If gold is accepted as a reserve asset, bitcoin warrants similar consideration.