• Digital currencies may replace the dollar as the global reserve currency.
  • The US risks losing its dominant position in the global financial system.

The adoption of digital currencies may undermine the leading positions of the US dollar in the global financial system, according to JPMorgan analysts. The experts from one of the world's largest banks say that the US needs to pay attention to central bank digital currencies (CBDC) trends, otherwise they may lose one of the most powerful tools of geopolitical influence. 

There is no country with more to lose from the disruptive potential of digital currency than the United States. This revolves primarily around U.S. dollar hegemony. Issuing the global reserve currency and the medium of exchange for international trade in commodities, goods, and services convey immense advantages, analysts commented as cited by Bloomberg.

The dollar won't lose its status of the global reserve currency overnight, the experts added. However, in some aspects the dollar dominance has already weakened. Notably, some countries may want to reduce the role of the global payment system SWIFT in global trade. The researchers pointed out that SWIFT suspended access for some Iranian banks in 2018 and thus become the key instrument for the US to carry out its goals in sanctions.

If countries find a way to circumvent the SWIFT system, dollar's role in the global system will shrink. Meanwhile, the cross-border solutions based on digital currencies may serve the purpose.

According to JPMorgan experts, the US should invest time and money in creating the digital dollar to protect its power in the global economy.

Offering a cross-border payment 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.

According to the recent research performed by the World Bank, over 80% of central banks consider the development of CBDC. Some of them, including Bank of China are at the final stages of launching the system.

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