Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297865 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
FMM Working Paper No. 102
Publisher: 
Hans-Böckler-Stiftung, Macroeconomic Policy Institute (IMK), Forum for Macroeconomics and Macroeconomic Policies (FMM), Düsseldorf
Abstract: 
Traditional trust-related de-dollarization motives have gained additional impetus from the declining share of the United States in global output, recent upheaval in dollar bond markets, geopolitical tensions, and a "weaponization" of the dollar. Several institutional innovations by China and the BRICS demonstrate the demand for de-dollarization but do not offer credible alternatives to the dollar's value characteristics. By contrast, new financial technology, including distributed ledger technology (DLT), and related changes in cross-border payment infrastructure could reduce the network effects that have sustained dollar dominance. By allowing for leaner cross-border payment infrastructures and an easier, cheaper, and more transparent use of non-dollar currencies in cross-border payment and settlement, DLT-based wholesale central bank digital currency (wCBDC) platforms with a foreign-exchange conversion layer may indicate a direction of travel. Pilots of multicurrency wCBDC-platforms indicate how to enable interoperability and reduce exposure to foreign-exchange risk. Regarding institutional (legal, regulatory, and supervisory) frameworks required to fully benefit from infrastructural changes, interlinking common multicurrency wCBDC-platforms among limited numbers of like-minded central banks to form an interoperable hub-and-spoke global wCBDC-system could minimize fragmentation risks while accommodating diverging governance preferences, e.g., concerning data protection and developmental aspirations. By augmenting macroeconomic autonomy and reducing the need for costly dollar reserves, de-dollarization promises greater benefits for countries with non-dominant currencies. These countries should sit at the table when outstanding questions on interoperability and related economic, technical, legal and governance questions regarding multicurrency wCBDCs platforms are answered.
Creative Commons License: 
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Document Type: 
Working Paper

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