Disruptive FinTech addressing “some gaps” in traditional finance
Marcel’s opening remarks acknowledged that cryptocurrencies like Bitcoin are already showing disruptive potential and provide some benefits over the legacy system. He said:
“Disruptive technologies in Finance or ‘FinTech’ 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.”
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 “improve the Central Banks’ toolkit”
DLT and CBDC could “enhance market efficiency” based on some research, says Marcel, who also notes these digital currencies can be more flexible in an “unconventional” monetary policy environment.
Specifically, one of the main benefits would be:
“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 Banks’ toolkit.”
Marcel, however, does acknowledge some possible drawbacks and that more research is needed to fully understand the technology’s potential. Moreover, the general public could interpret negative interest rates as “a new tax” 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 “unwind troublesome financial institutions and divest their assets.”
But while Marcel notes that CBDCs do not necessarily need a blockchain, he concludes:
“Monetary policy channels in a world with CBDCs may be faster and more powerful.”
China is reportedly at the forefront of central bank-issued digital currencies and could launch its own as early as Nov. 11.
Meanwhile, Morgan Creek Digital Assets co-founder Anthony Pompliano said in July that low-interest rates and money printing by central banks provide “rocket fuel” for Bitcoin’s value.