Goldman Sachs: CBDC will make fiscal and monetary policy more effective

21. Dezember 2020 Aus Von admin

Analysts at investment bank Goldman Sachs saw little benefit to fiscal and monetary policy following the Fed’s possible launch of a „lighter“ version of the CBDC. But their effectiveness will increase by an order of magnitude once additional functionality is added to the digital dollar.

A piece of research cited by The Block’s news director Frank Chaparro says that the initial version of the national digital currency (CBDC) could prove conservative in order to minimise potential damage to the financial system. However, it could open up the possibility of instant distribution of stimulus payments to the public.

The latter, according to Fed representatives Ister George and Loretta Mester, can be achieved without launching the CBDC through FedNow Service’s own payment and settlement network.

In the future, according to experts, a more advanced version of CBDC is possible. It would imply the possibility of interest payments, which would improve the transmission mechanism of monetary policy. In the context of monetary policy, the Fed would be able to change rates in real time or painlessly lower them into negative territory, the researchers admitted.

The launch of CBDC could also be useful for the US Treasury. Goldman Sachs believes that the department will be able to automatically change tax rates both temporally and geographically depending on incoming macroeconomic data, including on transactions involving the central bank’s digital currency.

Earlier, Fed chief Jerome Powell stressed that it was important for the US not to get ahead of others with digital currency issuance, but to get it right. He said the Fed has not yet made a decision on digital currency issuance – it is actively pursuing case studies, both independently and in partnership with other central banks and the Bank for International Settlements.

Earlier, ForkLog presented a piece on the digital yuan. A review of the Chinese authorities‘ successes along the way was later published.