Central Banks Can Use Bitcoin to Fight Sanctions: Harvard Study

Matthew Ferranti, Ph.D. Harvard candidate, pointed out that Bitcoin is an optimal alternative hedging asset for central banks.

A research paper published at Harvard University highlighted how central banks can use Bitcoin (BTC) to hedge against financial sanctions from fiat issuers.

A working paper titled "Hedging Sanctions Risk: Cryptocurrency in Central Bank Reserves" published by Matthew Ferranti, a PhD student in the university's economics department, explored the potential of Bitcoin as an alternative hedging asset for central banks in order to fight potential sanctions.

Ferranti argued that it is advantageous for central banks to hold a small amount of Bitcoin, even under normal circumstances. However, when there is a risk of sanctions, the researcher said it makes sense to hold more BTC with their gold reserves.

In the article, the researcher also pointed out that countries that faced sanctions risks from the United States had increased the share of their gold reserves much more than countries that had less risk of penalties. If these central banks cannot acquire enough gold to cover sanctions risks, the researcher argued that Bitcoin reserves are an optimal alternative.

Apart from this, the researcher believes that the risk of sanctions could eventually boost the diversification of central bank reserves, boosting the value of crypto and gold. Ferranti concluded that there are significant benefits to diversifying reserves and allocating portions to both Bitcoin and gold.

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