Central Bank-Issued Cryptocurrency Could Bring Economic Welfare Gains For Canadians

Central bank-issued cryptocurrency can possibly bring financial welfare gains for Canada and the U.S., as indicated by a central bank analyst.

On Thursday, a working paper was published and it stated that the Bank of Canada’s S. Mohammad R. Davoodalhosseini states that presenting a central bank digital currency (CBDC) “can lead to an increase of up to 0.64 percent in consumption for Canada and up to 1.6 percent for the US, compared with their respective economies if only cash is used.”

Right now, Davoodalhosseini says that a main inquiry to the “many” central banks presently pondering the choice of issuing a CBDC is whether money and a digital type of fiat cash should co-exist, and provided that this is true, how to keep up an “optimal’’ monetary policy.

When it comes to detailed modeling and mathematical calculations, the researcher argues in the paper that a nation’s financial welfare – at any rate for Canada and the U.S. – may be in an ideal situation by substituting money with a CBDC,  if the implementation is not expensive…

He wrote that: “Having both cash and CBDC available to agents (consumers) sometimes results in lower welfare than in cases where only cash or only CBDC is available. This fact suggests that removing cash from circulation may be a welfare-enhancing policy if the motivation to introduce CBDC is to improve monetary policy effectiveness.”

The paper additionally expresses that, by presenting a CBDC, national banks could have a larger amount of adaptability in changing the current monetary policy.

It says that “This is because the central bank can monitor agents’ portfolios of CBDC and can cross-subsidize between different types of agents, but these actions are not possible if agents use cash.”

The paper’s quantitative approach takes after a past December 2017 effort by different analysts from Canada’s national bank to check the benefit of offering a CBDC over money – work that took a more qualitative look at the upsides and downsides.

CoinDesk announced at the time that the analysts argued that the potential advantages of a CBDC may fluctuate amongst developed and developing economies.


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