Moving to a Central Bank-Issued Cryptocurrency Is Profitable for Canada and the U.S.

Moving to a Central Bank-Issued Cryptocurrency Is Profitable for Canada and the U.S.

Central bank-issued cryptocurrency might be financially beneficial for Canada and the U.S., as indicated by a central bank analyst.

What Do Numbers Say?

In a working paper published July 26, 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."

A key question to national banks that are considering to issue a CBDC is whether cash and a digital form of fiat currency should co-exist and how to keep up an "optimal" monetary strategy.

Fiat or Crypto, that Is the Question

The specialist insists in the document that a nation's monetary welfare – at least for Canada and the U.S. – may be better off by substituting fiat money with a CBDC.

"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," writes Davoodalhosseini.

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

 

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