Covid? Cryptocurrency? CBDCs? What's the relationship with these 3Cs?

The current shock to the global economy, exacerbated by the COVID-19 crisis is more severe, faster, and more multi-faceted than the Global Financial Crisis of 2008. The current pandemic is not a financial crisis but a healthcare system crisis driven by an exogenous shock and exacerbated by heightened levels of public and private debt, as well as a labour market crisis in the real economy resulting from the response to the pandemic. Funds channelled through open market operations led by central banks won’t reach market participants; these participants will continue facing bureaucracy, and other obstacles to accessing funds and financial support imposed by the banking sector. Any solution that seeks to address the current situation by resorting only to injection of liquidity into the markets, as if the nature of the crisis were essentially financial, will inevitably be weak and temporary. Along this thread, a growing community of central banks in Asia, Europe and North America are actively working with the International Monetary Fund to address the problem of resource distribution and allocation, and reach the real economy directly, to support individuals and businesses most in need of support. 

A particularly interesting innovation is the Government-backed digital currency based on distributed ledger technology. In contrast to traditional fiscal policy and monetary policy transmission mechanisms, central bank digital currency (CBDC), secured via a blockchain, would allow central banks to distribute money directly to consumers without relying on intermediaries. It also offers the potential for greater efficiency in payments and money transfers, letting merchants settle deals instantly, and avoid the current patchwork of banks and clearing houses, which can take days. In the event that each central bank roll out their own CBDC and assigns everyone a virtual wallet, direct credits and debits could replace stimulus checks and taxes. It would be the vehicle through which central banks become tax collectors and funders of all governments operations. 

To summarize, the high speed of digital assets as programmable money, and/or as a security that can be pledged as collateral, introduces a series of features that make CBDC a valuable alternative policy tool and payment infrastructure to better support economic, social, end environmental objectives, especially in times of crisis. It is inevitable for central banks to issue digital versions of their own currency in a controlled & secured environment, and test how a purely digital currency plug into existing commercial bank and payment networks.

Nico

P.S. At 162 Digital Capital we are building the future of digital assets investing. Our mission is to provide investors efficient exposure to the upside opportunities that digital assets and blockchain technologies unlock. We believe that blockchain networks will disrupt traditional business models across many industries and proliferate a new era of value creation.