Wall Street Journal: CBDCs could result in ‘deeply negative interest rate’

According to a new report, CBDCs could give central banks more control over interest rate adjustments by issuing them.
According to Wall Street Journal, central banks’ digital currencies (CBDCs), could have a negative impact on interest rates because they give policymakers another tool. James Mackintosh, a senior columnist, wrote that the difference between CBDCs and cash would be highlighted in an article published Sept. 8. He said that people would be more inclined keep their cash to “earn zero” than to lose money on digital dollars issued by the central banks. Central banks use negative interest rates as a last resort to stimulate an economy during a recession. Borrowers are paid interest, not lenders. According to Federal Reserve Economic Research, the current U.S. interest rate is 0.25%. The Fed slashed interest rates to 0% in March 2020 during the pandemic-induced market crash.Benoit Coeure, head of the Bank for International Settlements’ Innovation Hub told the WSJ that central banks are working to ensure that central bank issued virtual currencies are not seen to be “a possible monetary-policy instrument.””Negative rates aren’t easy to understand. It will be difficult for financial institutions and central banks to go there [deeply negatively].” Related: Fed will issue discussion paper about the benefits and risks of CBDC. Negative interest rates could also serve as a tool to fight deflation by weakening national currencies. This scenario would lead to lower exports and higher inflation. The European Central Bank has a rate at -0.5% after its initial sub-zero move in 2014. The Bank of Japan’s interest rate is -0.1%. It dropped below it in 2016. The Swiss National Bank has a rate of -0.75% and Denmark has a rate of -0.5%. Wolfram Seidemann (CEO of G+D Currency Technology) noted in July that CBDCs give banks more leverage over interest rates. He said that CBDCs are a type of “programmable currency” that can take agency from the bearer. “Programmable money has in-built rules that restrict the user. These rules could be used to limit the amount of goods or money that expires after a specific date.

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