There is a general consensus that the global economy is heading for a severe recession. The economic outcome will be mandatory, but at least there are some innovations that can be taken to mitigate the situation.
The central banks have already lowered interest rates and started quantitative easing in the US, UK and EU. But here’s something that further exacerbates the global financial situation: or central bank digital currencies (CBDCs) and cryptocurrencies.
According to both central banks and economists, the CBDC can make the monetary system faster and more efficient, while also increasing financial inclusion and reducing money laundering and tax evasion. At the same time, although central banks themselves are unlikely to use decentralized cryptocurrencies, they may have a positive macroeconomic role in the future.
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CBDC: Faster, more affordable money
As early as 2016, the Bank of England published a working paper detailing the macroeconomic consequences of the CBDC issuance. It is noteworthy that the issuance of the CBDC equivalent to 30% of UK GDP “can continuously increase to 3% of GDP, due to lower real interest rates, distorted taxes and reduced cash transaction costs.”
In March, the BoE released a new discussion paper, which again highlighted the macroeconomic benefits provided to the CBDC.
Given such potential advantages, the coronavirus pandemic has come at the perfect time for CDBCs and cryptocurrencies. Money use after locking in the US has fallen by about 50%, and payment in uncontrolled cards has increased in Germany.
And not just the Bank of England, which believes that CBDCs provide macroeconomic incentives. The Swiss Bankers Association also takes the position that the CBDC represents total net profit, as its public relations officer Michael Reiman told Cryptonews.com.