Implications for the Dollar of Central Bank Digital Currencies

23 Pages Posted: 17 Mar 2024

See all articles by Ross P. Buckley

Ross P. Buckley

University of New South Wales (UNSW) - UNSW Law & Justice

Date Written: March 12, 2024

Abstract

The launch of central bank digital currencies (CBDCs) and likely connection of domestic fast payment systems through hubs will dramatically reduce the current costs and delays of international payments. These developments will facilitate the direct exchange of many currencies and thus reduce demand for the US dollar as a vehicle currency through which other currencies are exchanged. This decline in demand for the dollar will reduce the proportion of dollars nations elect to hold in their foreign exchange reserves, thereby exacerbating the current long-term decline in the dollar as the world’s principal global reserve currency. The current dollar-dominated international financial system is highly favorable to the US. By weaponizing the dollar to impose sanctions upon other countries, the US is incentivizing nations to move away from the current system, as Russia, China and other countries are already doing. In doing so, the US is squandering its exorbitant privilege as issuer of the preeminent global currency. The creation of a wholesale US dollar CBDC for offshore use will be absolutely critical for the US in the new, multi-polar international financial system.

Suggested Citation

Buckley, Ross P., Implications for the Dollar of Central Bank Digital Currencies (March 12, 2024). UNSW Law Research Paper No. 24-6, Available at SSRN: https://ssrn.com/abstract=4762368

Ross P. Buckley (Contact Author)

University of New South Wales (UNSW) - UNSW Law & Justice ( email )

Sydney, New South Wales 2052
Australia

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