Author: Gan Jia Ci
According to a report by Morgan Stanley researchers, central banks will soon be able to use state-sponsored cryptocurrencies to quickly address the problems of financial crises in the future.
A Morgan Stanley team led by strategist Sheena Shah found certain areas of possible central bank use for cryptocurrency. The report identifies different ways in which central banks could use these government-backed cryptocurrencies to improve on the governance of monetary supplies. The researchers explained that the research was “not intended to suggest where we think a digital fiat currency could be implemented or all the reasons why.”
The researchers have come to a conclusion that this technology allows central banks to set a new record for the lowest negative interest rates in history by implementing policies on monetary supply directly instead of using financial institutions as intermediaries.
The team stated, “Theoretically, a monetary system that is 100% digital may enable deeper negative rates.”“This appeals to certain central banks,” they added.
“Freely circulating paper notes and coins (cash) limits the ability of the central banks to force negative deposit rates. A digital version of cash could theoretically allow negative deposit rates to be charged on all money in circulation within any economy.”
According to the researchers, the banks will have to directly go “to currency users to implement monetary policy, reducing leverage in the system significantly and cutting GDP growth”.
Despite the benefits of the monetary system, it could result in capital outflows to decentralised cryptocurrencies as well.
Many central bankers remain pessimistic about the situation. Jens Weidmann, head of Germany’s Bundesbank, stated in 2017 that cryptocurrencies like Bitcoin could possibly result in more destructive financial crises.