Morgan Stanley Says Banks Could Use Cryptocurrencies to Mitigate Financial Crisis

Things are getting more interesting in the cryptoverse, as more interesting research is being carried out. Every sector in the world is clutching on to cryptocurrencies and the technology that powers them – Blockchain.

A report released by a team of researchers at Morgan Stanley revealed that Bitcoin and cryptocurrencies could help central banks to cut interests rates, which would help reduce the impact of any financial crisis in the future.

During the last global financial crisis of 2007 – 2008, central banks imposed lower interests rates as a way of protecting lenders and consumers from the harsh effect of the crisis. The crisis was so severe that some central banks had to implement negative rates.

Banks could use cryptos in many areas.

The research led by Sheena Shah, also revealed that banks could employ cryptocurrencies in many areas. Nonetheless, the study does not suggest that virtual currencies will eclipse fiat currency.  

One of the areas where cryptocurrencies could be used is in the field of monetary policy. It was stated that cryptos could enable banks to impose deeper negative rates on interests if a financial crises were to occur.

“Theoretically, a monetary system that is 100% digital may enable deeper negative rates. This appeals to certain central banks,” Shah and the team explained.

“Freely circulating paper notes and coins (cash) 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,” they continued.

Over the years, there has been an increasing global interest among central banks and financial institutions. While some countries have created their own currencies, many more are looking into that direction.

However, some central banks are still in doubt about the credibility of cryptocurrencies. They do not support these findings and suggestions from Morgan Stanley

In particular, the head of Germany’s Bundesbank, Jens Weidmann, had earnestly cautioned that cryptocurrencies would only aggravate the impacts of financial crises in the future. He argued that if central banks create their own cryptos to reassure users that their currencies are secure, it will increase the risks of having a financial crisis.

Now, the big question is: would cryptocurrencies really help in mitigating the impacts of a future global crisis or would they make financial crises more devastating as cautioned by Jens?