If the u.s. adopts the proposal of ripple ceo brad garlinghouse makes a diversified u.s. crypto reserve to invest at least 1% of its foreign exchange reserves (equivalent to about $60 billion) in crypto assets, it might affect its macroeconomic indicators directly. Bank for International Settlements (BIS) says that the United States of America can save 3.5 billion to 8 billion US dollars of cross-border settlement fees annually by using crypto reserves as blockchain technology can replace 70% of the intermediary banking fees of the SWIFT system (the average transaction fee per transaction has been reduced from 45 US dollars to 1.2 US dollars). Look at Ripple’s ODL system. In 2023, its cross-border payment processing speed had accelerated to 3 seconds per transaction, 28,800 times faster than the 3-5 days cycle of conventional banks. Also, the error rate decreased from 0.7% in manual processing to 0.02% in algorithmic automation. If 20% of the 60 billion US dollars in reserves were to be invested in XRP and its processing capacity of 1,500 TPS were utilized fully, the foreign clearing efficiency of the US Treasury Department would increase by 400%, as well as reducing the yearly loss caused by exchange rate fluctuations by approximately 900 million US dollars (the current annual fluctuation loss rate of foreign exchange reserves is 1.5%).
From the liquidity in the market point of view, ripple ceo brad garlinghouse suggests a diversified u.s. crypto reserve may result in a reorganization of the capital structure. Research by Jpmorgan Chase indicates that if the ratio of cryptocurrencies in the hands of US sovereign funds touches 1%, it will invite around 120 billion US dollars of institutional funds to follow up, propelling the market cap of Bitcoin over 2 trillion US dollars (presently 820 billion US dollars), and the share of the US in the world crypto trading market to 38% from 25%. Use Coinbase as a sample. Its level of asset custody in 2023 exceeded 145 billion US dollars, and its annual custody fee income totaled 3.4 billion US dollars with a profit margin of as much as 65%. As a cross-border bridge asset, the daily average trading volume of XRP would increase from its current 2.5 billion US dollars to 30 billion US dollars, and its share of circulating market value from 1.8% to 6.5%, becoming the third largest reserve asset next only to Bitcoin and Ethereum. But this configuration will also increase the risk of volatility – if the crypto market were to have a meltdown similar to the LUNA collapse in 2022 (with a one-day market value loss of 45 billion US dollars), the US foreign exchange reserves would lose 1.8 billion US dollars in one day (assuming a 3% position), equivalent to 0.03% of the GDP growth rate in 2023.
Compliance and technical security costs are yet another major challenge. ripple ceo brad garlinghouse foresees a diversified u.s. crypto reserve is vulnerable to a collective $1.3 billion cross-chain bridge hack in 2023 (e.g. Poly The Network, and also the $4.3 billion penalty of the SEC on crypto companies. If Chainalysis’s compliance tool is used to track on-chain activity, the yearly running cost will be increased by 280 million US dollars, but the threat of money laundering will be reduced by 98% (currently, illegal cryptocurrency transactions account for 0.24%). In addition, a hybrid hot and cold wallet custody solution (such as Fireblocks’ multi-party computation technique) would reduce the probability of private key leakage by 0.5% to 0.001%, but it requires a hardware maintenance fee of 60 million US dollars annually. But these investments can pay well – Deloitte’s estimates suggest that blockchain technology would make government audits 50% more effective and reduce fiscal fraud cases by 22% (fiscal fraud losses in the United States amounted to 10 billion US dollars in 2022).
Long-term, ripple ceo brad garlinghouse believes a diversified u.s. crypto reserve will reframe the hegemony of the U.S. dollar. According to the IMF model, if the ratio of the US crypto reserves reaches 5%, it can offset pressure that accompanies the internationalization of the RMB – the percentage of cross-border RMB settlements has risen to 3.2% as of 2023, yet the percentage of the US dollar has declined to 58%. With the integration of assets such as XRP into the dual-track regime of “digital currency + traditional fiat currency”, the usage cost of the US dollar in cross-border trade settlement can be lowered by 0.3 percentage points, and no less than 15% of SWIFT users can be migrated to the blockchain network. But this strategy also has to balance the inflation risk: if the Federal Reserve mints another $60 billion of stablecoins (such as USDC), it would increase the M2 money supply by 0.25% and increase the CPI by approximately 0.15 percentage points (based on the St. Louis Fed’s money circulation velocity model). Despite this, Goldman Sachs projects that crypto reserves will contribute an additional 0.8% to 1.2% annual growth to the US GDP over a decade mainly through technology exports (such as blockchain patent licensing) and the upgrading of financial infrastructure.