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Chileâs top central banker says the financial system could benefit from central bank digital currencies, particularly in âunconventionalâ monetary policies.
Chileâs central bank governor, Mario Marcel, says central bank digital currencies (CBDC) can provide additional flexibility at a time of âunconventional monetary policies.âÂ
Marcel made the comments in a speech titled âHigh-level Policy Panel Discussion on Central Bank Digital Currencies" at the OECD Global Blockchain Policy Forum held in Paris on Sept. 12.
Disruptive FinTech addressing âsome gapsâ in traditional financeÂ
Marcelâs opening remarks acknowledged that cryptocurrencies like Bitcoin are already showing disruptive potential and provide some benefits over the legacy system. He said:Â
âDisruptive technologies in Finance or âFinTechâ are transforming the financial industry landscape, challenging traditional business models. These technologies have been able to address some gaps in the traditional financial industry that can be grouped into five categories: Access, Speed, Cost, Transparency and Security.â
However, Marcel argues that this new technology can also be adopted by the banking system itself to mitigate its disruptive potential. Moreover, distributed ledger technology (DLT) can provide some benefits that conventional money technology cannot, according to Marcel.
CBDCs can âimprove the Central Banksâ toolkitâ
DLT and CBDC could âenhance market efficiencyâ based on some research, says Marcel, who also notes these digital currencies can be more flexible in an âunconventionalâ monetary policy environment.
Specifically, one of the main benefits would be:Â
"Crisis management around the Zero Lower Bound. In a world of low real interest rates, the impact of unconventional monetary policies, such as QE, nominal GDP targeting and forward guidance, appears to be limited. [...] Fixing negative nominal interest rates in a flexible way could improve the Central Banksâ toolkit.â
Marcel, however, does acknowledge some possible drawbacks and that more research is needed to fully understand the technologyâs potential. Moreover, the general public could interpret negative interest rates as âa new taxâ and would likely see pushback from lawmakers.
Marcel adds that CBDCs can give central banks more intervention tools and reduce the risk of bank runs. Also, balance sheets on a transparent ledger can make it easier to âunwind troublesome financial institutions and divest their assets.âÂ
But while Marcel notes that CBDCs do not necessarily need a blockchain, he concludes:Â
âMonetary policy channels in a world with CBDCs may be faster and more powerful.â
As Cointelegraph reported earlier this month, China is reportedly at the forefront of central bank-issued digital currencies and could launch its own as early as Nov. 11.Â
In March, Bank of International Settlements chief Agustin Carstens warned that banks should not stop innovation, but should still approach cryptocurrencies with caution.
Meanwhile, Morgan Creek Digital Assets co-founder Anthony Pompliano said in July that low-interest rates and money printing by central banks provide ârocket fuelâ for Bitcoinâs value.
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