According to Jeffrey Sachs, a renowned economics professor and the director of the Columbia University Center for Sustainability, state-backed digital currencies will eventually replace the US dollar in the payment sphere.
Sachs emphasized that up to 60% of foreign trade settlements are presently conducted in US dollars, with about half of foreign exchange reserves held in this currency.
However, he is convinced that the global role of the US dollar will gradually diminish, given the currency’s politicization and the fact that countries like Russia, Venezuela, and Iran have had their foreign exchange reserves seized by the US government.
Sachs believes that central bank digital currencies (CBDCs) will take over from the US dollar in the future.
The People’s Bank of China (PBOC) has already begun testing its digital yuan in the retail sector, and Sachs thinks that it will eventually be used for international payments.
Furthermore, countries such as China, Russia, India, South Africa, and Saudi Arabia are exploring alternative payment methods and are keen to avoid the US dollar-based banking system.
Therefore, the role of CBDCs issued by these countries’ central banks will become increasingly prominent in the payment sector, Sachs predicts.
Despite acknowledging the benefits of government-backed stablecoins, Sachs remains doubtful about conventional cryptocurrencies.
In the past, he criticized bitcoin, stating that it does not contribute anything beneficial to society.
Sachs is not alone in his optimism about CBDCs; many central bank analysts agree that they will help advance the payment system.
The governor of the Bank of Japan recently stated that the digital yen could complement the country’s financial system, despite previously considering it risky.