As central banks explore the technology underlying that which threatens to undermine them, experts at Morgan Stanley have suggested that digital currencies could enable deeper negative interest rates during the impending financial crisis.
NEGATIVE INTEREST RATES
According to new findings from Morgan Stanley, central banks could use cryptocurrencies to lessen the negative impacts of the next financial crisis by slashing interest rates.
As reported by Business Insider, a team of strategists from the multinational investment bank and financial services company uncovered multiple areas for which central banks could utilize cryptocurrencies to their benefit. The most noteworthy application for the controversial and volatile digital currencies, however, is in the realm of monetary policy. Morgan Stanley’s report claims that central banks could plummet interest rates into deeper negatives than ever before, should another major financial crisis take place.
As noted by Business Insider, the last financial crisis saw central banks around the world slash interest rates in dramatic fashion in an effort to mitigate the extreme impact of the economic collapse on consumers and lenders. Banks in Sweden, Denmark, Japan, and the EU even took said interest rates into the negative — some of which remain to this day. (Though not below -0.5 percent.)
Explained the team at Morgan Stanley:
Theoretically, a monetary system that is 100% digital may enable deeper negative rates. This appeals to certain central banks. 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 negativedeposit rates to be charged on all money in circulation within any economy.
However, it’s important to note (and unsurprising) that the researchers also clarified that their report is “not intended to suggest where we think a digital fiat currency could be implemented or all the reasons why.”
Furthermore, there are some serious potential problems inherent to such a digital-only system. Notes Morgan Stanley:
Deep and long-standing negative rates eventually are problematic for banks. Central banks would then have to go direct to currency users to implement monetary policy, reducing leverage in the system significantly and cutting GDP growth.