Harvard Research Paper Urges Governments and Central Banks to Add Bitcoin to Reserves to Hedge ‘Sanction Risk’

cryptonews.com:

Central banks in countries that face a risk of being sanctioned by the US could shift their international reserves to include bitcoin (BTC), a new Harvard University research paper has argued.

The research paper based the idea of central bank risk hedging with bitcoin on the fact that many central banks – and in particular those facing a higher risk of US sanctions – in recent years have increased the share of their reserves made up by gold, a traditional central bank reserve asset.

According to the author, adding a BTC allocation in addition to gold would further increase the resilience against sanctions for these countries. This is especially true in cases where the country struggles to acquire enough physical gold, the author argued.

Titled Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves, the newly published research paper is written by Matthew Ferranti, a PhD candidate in economics at Harvard University.

“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,” Ferranti wrote.

In the paper, Ferranti pointed to the freezing of Russia’s international central bank reserves in the aftermath of the invasion of Ukraine as an example of why this question is now more relevant than ever.

“[…] it is timely to explore the question of how, and to what extent, the risk of financial sanctions may motivate changes in central bank reserve composition,” the PhD candidate noted in the paper.

Ferranti also noted in his paper that bitcoin, as a proof-of-work-based digital asset, is particularly useful as a sanction hedge.

“Under a proof-of-work system, the ability to censor