Public cryptocurrencies could help monetary policies and central bank activities. In particular, blockchain technology could help to control interest rates and cash flow, leading to greater financial stability.
This is the conclusion reached by Banco de España (BDE), Spain’s top monetary institution, in its recent report on the influence of state-owned cryptocurrencies. However, the central bank recommends caution. While the blockchain technology may be a decisive factor for the country’s economy, it needs further research and analysis for possible risks.
While the Spanish bank has been critical for a long time towards cryptocurrencies, in its recent report the authority has emphasized the possible potential of digital currencies issued by central banks; this could aid the management of national monetary policy and thus support the country’s economy.
The report “Possible Consequences for Monetary Policy,” highlights the possibilities of controlling monetary policy. While the central bank is currently unable to monitor it adequately, such control is possible through specially issued digital alternatives, the report said.
While the European Central Bank adopts the guidelines for monetary policy in Europe, the central banks of the member states and the BDE are trusted with their national management.
The report also insists that blockchain technology can help improve interbank payments and manage short-term interest rates. State-owned cryptocurrencies could prove to be a useful tool to control demand and thus the economy of the country. Furthermore, savers and borrowers would benefit from the improved interest conditions; this would ultimately strengthen the Spanish economy.
The report was published in a period when Spain is experiencing an extended period of economic consolidation. Following the euro crisis, Spain’s economy along with the labor market recovering very fast. The BDE is currently expecting growth of almost two and a half percent for 2018.
Nonetheless, the country continues to stay under an above-average unemployment rate of around 17 percent.
The authority added that for blockchain technology to be able to contribute to the economic improvement in the future, it should be extensively researched; hinting that an intense study of its utility is necessary. Because you still do not understand the logic of the technologies completely. Besides the benefits, the BDE also mentioned the current risks and uncertainties, such as cyber attacks.
“In my opinion, their current use (of cryptocurrencies) presents more risks than benefits: they have low acceptance as a means of payment, suffer extreme volatility, present multiple operational vulnerabilities and have been related to fraudulent or illicit activities in many cases,” said the governor of the Bank of Spain, Luis María Linde in May 2018.
However, blockchain is well received by the Spanish authorities. In June, the Spanish MPs of the ruling Partido Popular launched a bill to suggest that the public administration should use blockchain technology to cut costs. The government in Madrid also plans to lure blockchain companies with tax breaks into the country.