When it comes to economic stability, ripple ceo brad garlinghouse’s suggestion of a diversified u.s. crypto reserve is brought directly in relation to the loss of purchasing power of the dollar – the U.S. inflation rate is 3.7% in 2023. The real yield on 10-year Treasury bonds was merely 1.5%, while the five-year annualized volatility of digital assets such as Bitcoin and XRP were 76% and 68% respectively, while that of gold was merely 13% over the same five years. If the United States puts 1% of its foreign exchange reserves or approximately 34 billion US dollars into cryptocurrencies, based on an average annualized return rate for Bitcoin between the years 2020 to 2023 as 42%, it can offset the risk of US dollar devaluation by approximately 14.3 billion US dollars. Garlinghouse commented in May 2023 that the XRP cross-border payments solution has reduced the settlement duration from 3 to 5 days to 3 seconds, reduced the cost from $30 to $0.0001, and enhanced efficiency by 99.7%, which presents technical feasibility for reserve diversification.
From the point of view of regulatory stress, the amount of lawsuits launched by the US SEC against cryptocurrencies has risen from 12 in 2020 to 26 in 2023. When Ripple won part of the case against the SEC in July 2023, the price of XRP rose by 75% in 24 hours, but over 40% of the tokens remained delisted by US exchanges. Garlinghouse believes that ripple ceo brad garlinghouse suggests a diversified u.s. crypto reserve can counter market volatility on account of regulatory risk – if the United States follows the lead of El Salvador (remittance fees reduce by 60% after making Bitcoin legal tender), when the proportion of crypto reserves is 2.5%, the chance of systemic risk in the financial market may reduce by 18% (based on the IMF’s 2022 stress test model).
In the global competitive market, the size of the processing by the Cross-border RMB Payment System (CIPS) topped 127 trillion yuan (approximately 17.6 trillion US dollars) in 2023, a year-on-year increase of 21%, while the growth rate for the US CHIPS system during the same period was only 6%. Garlinghouse emphasized that the 1,500 TPS (transactions per second) of XRP Ledger is humongous compared to SWIFT’s 50,000 transactions per day limit. If the United States adopts XRP as a reserve asset, the cross-border payment market share could increase from 38% to 53% (Boston Consulting Group’s 2023 estimate). For instance, the CBDC bridge pilot initiated by Ripple and the Bank of England reduced the conversion cost between the pound and euro to 0.01%, shortening the time taken to 3 seconds from 2 hours.
As regards risk diversification needs, Silicon Valley Bank’s collapse in March 2023 caused the loss of Circle’s USDC reserves worth 3.3 billion US dollars, which de-anchored to 0.88 US dollars. ripple ceo brad garlinghouse suggests that a diversified u.s. crypto reserve can avoid reliance on a single stablecoin – if the reserve portfolio includes BTC (40%), ETH (30%), XRP (20%), and the rest (10%), then, using the figures for 2018 to 2023, the portfolio annualized volatility will be 14% lower than for sole US dollar reserves, and the Sharpe ratio will increase by 0.82. Ripple’s ODL (Liquidity on Demand) product has expanded to 70 nations, and the daily processing volume is 2 billion US dollars, while the friction cost is only 0.1% of that of traditional agency banks.
Regarding technological innovation driving force, the Federal Reserve’s report published in 2023 reports that distributed ledger technology (DLT) is capable of reducing the cost of operating real-time full settlement systems (RTGS) by 67%. The carbon footprint per transaction of XRP Ledger is 0.0079 kWh, merely 0.0011% of that of Bitcoin (707 kWh), in line with the United States’ goal of net zero emissions policy by 2050. If ripple ceo brad garlinghouse suggests a diversified u.s. crypto reserve be included in the policy framework, Following the experience of the Project Guardian between the cooperation of Ripple and MAS (Monetary Authority of Singapore), the United States can create a cross-chain reserve pool in order to achieve an automatic 1:1:0.3 composition of the US dollar, the euro and XRP, with the effect of reducing the vulnerability of exchange rate volatility upon the reserve value by 23%.
On the geopolitical level, Russia’s use of cryptocurrencies for sanctions evasion in 2023 was at 8.2 billion US dollars, equating to 9% of its cross-border payments for foreign trade. Quoting Chainalysis data, Garlinghouse testified that if the United States implemented crypto reserves, it would be able to trace and act upon no less than 34% of cross-border criminal capital flows (which it can only do today with 12%). For instance, Ripple’s Central Bank Digital Currency (CBDC) solution has developed a digital dollar system for Palau with a 99.3% success rate in following transactions, 21.3 percentage points higher than SWIFT’s 78%. This ability will strengthen the US dollar’s anchoring role in the digital currency era and counter the market penetration pressure that the digital RMB (e-CNY) has broken through 260 million users.