A new report by America’s biggest bank, JP Morgan Chase, said the U.S dollar is being faced with a major threat as many  central banks’ digital currencies continue to gain traction.

Analysts, including Josh Younger, the head of U.S. interest-rate derivatives strategy and Michael Feroli, the chief U.S. economist, wrote in a report saying this:

“There is no country with more to lose from the disruptive potential of digital currency than the United States.

“This revolves primarily around U.S. dollar hegemony. Issuing the global reserve currency and the medium of exchange for international trade in commodities, goods, and services convey immense advantages.” 

Aditi Kumar and Eric Rosenbach also recently penned an opinion piece for Foreign Affairs in which they noted that “Just recently, America’s arch-rival China became the first major economy to carry a real test of a national digital currency.”

(READ MORE: Why the strong dollar is giving Nigeria headache)

In general, digital currencies could weaken the power of U.S. sanctions and the ability of the U.S. Treasury to watch illicit financial flows. A digital Chinese currency (yuan) combined with China’s developed electronic payment systems may give China more future influence than it ever bargained for.  

What Nigerians should know about Digital currencies

A digital currency is a cash balance recorded electronically on a store value card or other physical devices, which could someday replace the physical notes of the naira, for instance.

Digital currencies can be decentralized, that is where the control over the cash supply can come from diverse sources. Digital  currencies can also be centralized, where there is a midway point of control over cash supply, just like the way central banks work.

Although JP Morgan does not see the U.S dollar being overthrown as the world’s reserve currency anytime soon, experts warned that the U.S dollar dominance could weaken. This is because its processing trade settlement and the SWIFT system could make it more vulnerable.

The American bank continued by saying:

“Offering a cross-border payment solution built on top of a digital dollar would, particularly if designed to be minimally disruptive to the structure of the domestic financial system, be a very modest investment to protect a key means to project power in the global economy,

“For high-income countries and the U.S. in particular, digital currency is an exercise in geopolitical risk management.” 

Federal Reserve Chairman Jerome Powell said months ago that the Federal Reserve was taking a critical view on the issues regarding a digital currency.

The U.S dollar was up on Monday morning during London’s trading session after protests in Hong Kong yesterday escalated U.S-China tensions.

US dollar stood firm against major currencies on Monday as fears over rising tensions between America and China heightened.

The American Dollar Index that monitors the U.S dollar against a basket of other major currencies was slightly up 0.02% to 99.945 by 11.10 am Nigerian local time.

What it means: Nigerians hoping to meet a foreign exchange payment obligation, transactions via the dollar to countries like Europe, Japan, would have the need to pay fewer dollars to fulfill such transactions.

(READ MORE:Reports: China may defer loans owed by Nigeria and others)

Meanwhile, the friendship between the Americans and Chinese has soured lately since the outbreak of the COVID-19 pandemic. US President Trump and President Jinping of China have traded words against each other issues surrounding COVID-19, including accusations of lack of transparency and cover-ups. 

Consequently, the U.S. Commerce Department added 33 Chinese businesses to a blacklist on Friday, and some U.S. Senators proposed sanctions on those businesses.

“The biggest concern is the tension between the United States and China, things were already bad, and it is likely to get worse because of the Hong Kong security law. This supports risk-off trades, which is positive for the dollar and the yen,” Tekuya Kanda, the general manager of research at Gaitame.com Research Institute, told Reuters.

Bitcoin plunged to as low as $8,750 on Monday morning, according to data obtained from coinmarketcap, before it rebounds to around $8,826, by 8.30am, Nigerian local time.

Bitcoin and other digital coins recorded similar falls, with most major digital coins losing between 5% and 10%, and losing more than $10 billion from the total cryptocurrencies market value.

The specific cause for this sell-off was not clear, although the cryptocurrency market appeared to be affected by old bitcoin tokens worth about $500,000 moving for the first time in years.

What you need to know about Satoshi Nakamoto: Bitcoin was created in 2008 by an unidentified individual or group using the name Satoshi Nakamoto, in 2009. The source code was released as open-source code. Bitcoins are designed as a reward for a process known as mining.

(READ MORE: Why Nigerians’ are attracted to bitcoin)

“While it is unclear if it was [bitcoin’s mysterious creator] Satoshi Nakamoto, it is likely to be a very early-stage adopter of the crypto-asset, and the timing of the rumors themselves appear to be the source of yesterday’s flash crash,” eToro market analyst, Adam Vettese wrote in a note to investors. 

Also bitcoin’s price pattern showed a mixed picture with one widely-respected cryptocurrency analyst, Quantum Economics’ founder Mati Greenspan, warning that the bitcoin price could plunge a lot further.

“We’re now sitting at the top of a long-standing wide range, the bottom of which could easily be $6,000 or even $4,000 per bitcoin,” Greenspan wrote in a note, adding that he thought there was “a fair chance” of the market turning around and “blasting through $10,000” per bitcoin.