According to a Bank of America report, government-backed cryptocurrencies have the potential to contribute to a powerful, targeted “money giveaway” and boost inflation expectations.
A Bank of America report titled “Digital Love: Central Bank Digital Currencies” explains the benefits of government cryptocurrencies, including the ability to increase the speed of domestic and international payments while reducing costs.
“State-owned cryptocurrencies may accelerate the distribution of monetary and fiscal stimulus in the future,” the bank’s analysts wrote.
The report notes that the launch of state-owned cryptocurrencies may indirectly create additional demand for crypto assets as a hedge against inflation.
“State-owned cryptocurrencies represent the next frontier for Central Bank stimulus allocation, potentially acting as a powerful conduit for the emergency lending program, the universal basic income, and provoking a targeted ‘money supply contraction’. The evolution of central bank digital currencies is likely to increase inflation expectations, which will strengthen the case for inflationary assets in the 2020s.”
Analysts also noted that the development of cryptocurrencies is pushing central banks to protect their role in settling settlements, as well as their ability to control banks and conduct monetary policy. According to the report, state-owned cryptocurrencies can provide low-income segments of the population with greater access to financial services without bank intermediation.
“The issuance of state-owned cryptocurrencies would probably simplify the structure and facilitate the targeted expansion of lending services,” the analysts said.
However, the report also lists the potential disadvantages of state-owned cryptocurrencies. Governments can gain access to data on private spending and trigger a “crowding out effect”.»:
“State-owned cryptocurrencies can compete with banks and money funds by providing another value-preserving option, reducing cheap deposit financing for banks, and reducing the margins of money funds.”
Bank of America analysts expect that the development of state-owned cryptocurrencies will lead to an increase in inflation expectations, which will strengthen the case for investing in inflationary assets over the next few years.Recall that recently, researchers at the Bank for International Settlements said that compatible state-owned cryptocurrencies will open up the possibility for countries to improve the system of cross-border payments.