Morgan Stanley says cryptocurrencies could offset financial crises

A report by Morgan Stanley has found that cryptocurrencies could be used to offset the negative consequences of future financial crises. If central banks utilize cryptocurrencies, they could aggressively cut interest rates and even enforce negative interest rates.

As seen during the last financial crisis in 2008, central banks reduced interest rates significantly to protect citizens, consumers, and lenders from the negative consequences of the said crisis. Some central banks even declared interest rates in the negative territory, with some banks still remaining with them.

The report by Morgan Stanley argued that digital assets such as cryptocurrencies can allow central banks to take interest rates even deeper than they did the previous time. This would offset the negative consequences of any future financial crises by a considerable amount. The research team said:

“Freely circulating paper notes and coins limits the ability of the central banks to force negative deposit rates. A digital version of cash could theoretically allow negative deposit rates to be charged on all money in circulation within any economy”

Traditional monetary policy tools do not do well with negative interest rates, but the transparency and immutability of blockchain-based digital assets could provide central banks with the tools required.

However, Morgan Stanley did state that “…deep and long-standing negative rates eventually are problematic for banks” and that:

“Central banks would then have to go direct to currency users to implement monetary policy, reducing leverage in the system significantly and cutting GDP growth.”

Central agencies all over the world are dipping their toes into cryptocurrency waters, with the Sweden Central Bank, Riksbank, considering the introduction of its own currency known as the eKrona. It is left to see whether regulatory authorities will decide to take this approach or decide to regulate existing digital assets.

Twitterati took to the Internet to discuss this. A crypto enthusiast says:

“Regulation will always be strong…companies must follow regulation for mainstream adoption”

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