Digital Currencies: The Impacts of CBDCs on the Hegemony of the US Dollar (Revista Ibero-Americana de Humanidades, Ciências e Educação)

Summary

• CBDCs have the potential to make international payments faster and more direct, reducing the need for traditional intermediaries and the use of the dollar in certain operations.p.1
• Dollar hegemony rests not only on technology but also on its wide use, international trust and the strength of the US financial market, so its replacement is not likely in the short term.p.1
• The dollar is the most used currency for trade invoicing, at 54% of global trade, and holds 44% of global foreign exchange market turnover.p.8
• The most common CBDC design is the two-tier model, in which the central bank issues the digital currency while commercial banks and payment providers distribute wallets and serve users.p.9
• The article sees three paths for the international monetary system: continued dollar hegemony on modern CBDC-based systems, a more multipolar system, or fragmentation with low integration.p.12

Key insights

1. CBDCs could reduce dependence on the dollar as an intermediary currency, but only gradually.p.1
2. The dollar is used for 54% of global trade invoicing.p.8
3. The dollar accounts for 44% of global foreign exchange market turnover.p.8
4. Multi-CBDC models would let central banks share an infrastructure so that cross-border transfers need fewer intermediaries.p.6
5. Payment-versus-payment mechanisms complete the transfer of one currency only when the other is also transferred, reducing settlement risk.p.7
6. If part of deposits migrates to retail CBDC wallets, commercial banks could lose funding and their capacity to lend could fall.p.9
7. Lack of security standardization could leave CBDCs unable to operate with each other and fragment the international payment system.p.10