There is a general consensus that the global economy is heading for a sharp recession. The economic output will contract, but there are, at least, certain innovations that can be implemented to mitigate the situation.
Central banks have already slashed interest rates and begun quantitative easing in the US, the UK, and the EU. But there’s something that could ease (or at least lubricate) the global financial situation even further: central bank digital currencies (CBDCs) and cryptocurrencies.
According to central banks themselves and to economists, CBDCs can make the monetary system faster and more efficient, while also increasing financial inclusion and reducing the scope for money laundering and tax evasion. At the same time, even though central banks themselves are unlikely to use decentralized cryptocurrencies, these could also play a positive macroeconomic role in the future.
CBDCs: faster, more accessible money
Back in 2016, the Bank of England published a working paper in which it detailed the macroeconomic consequences of issuing a CBDC. Most notably, it concluded that issuing CBDCs equivalent to 30% of the UK’s GDP “could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs.”
And this March, the BoE published a new discussion paper, which again highlighted a variety of macroeconomic benefits likely to be delivered by a CBDC.
Given such potential advantages, the coronavirus pandemic has come at the ‘perfect’ time for CDBCs and cryptocurrencies. Cash usage has plummeted by around 50% since the lockdown in the U.K., while contactless card payments have surged in Germany.
And it’s not only the Bank of England that believes CBDCs would provide a macroeconomic boost. The Swiss Bankers Association also takes the position that CBDCs would be an overall net gain, as explained to…