According to a report released by Morgan Stanley, cryptocurrencies and Bitcoin could allow banks to cut interest rates in the future – mitigating the impact of a future financial crisis. If banks like Morgan Stanley say these things, then we need to seriously think about Bitcoin and virtual currencies as a way to avoid crisis.
Morgan Stanley – Bitcoin Could Mitigate Impacts of Financial Crisis
A group of analysts at Morgan Stanley identified several areas of central bank use for cryptocurrencies. The team led by Sheena Shah explained that the monetary policy could change drastically with cryptocurrencies.
About it, Morgan Stanley said that digital currencies could let central banks reduce their interest rate and reach negative values – even before of a major financial crisis.
In the last financial crisis, global central banks decided to cut interest rates so as to protect consumers and lenders from the effect of the crisis. In many places like the European Union, Sweden or Denmark, the central banks imposed negative rates.
The team led by Sheena Shah explains:
“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.”
This could help banks mitigate the impacts of a financial crisis even before it starts. According to UBS, rates could drop as low as -5% in order to reduce the effects of a crisis. With traditional monetary policy, that would be virtually impossible, but with cryptocurrencies that could be possible.
“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.”
Bitcoin and cryptocurrencies have been designed to allow individuals to transact money in a free way without any intermediaries. But what they creators did not think about, was the fact that even traditional institutions like important private and central banks, could use bitcoin and other digital currencies to reduce the effects of a major financial crisis.
