CBDCs Unlock Endless Fiscal Policy Options

RippleCBDCs Unlock Endless Fiscal Policy Options


Proponents of central bank digital currencies (CBDCs) often point to the additional fiscal policy options that CBDCs enable such as efficient stimulus payment delivery. The COVID-19 pandemic highlighted this weakness in the U.S. financial system when the government struggled to deliver CARES Act payments quickly to those in need. As a result, the banked population with higher incomes quickly received their stimulus payments, while the unbanked and underbanked population—those in the most need of financial relief—were at the end of the line. 

A CBDC could not only transform stimulus payments, but it could also enable unlimited fiscal policy options.

Depending on a CBDC platform’s structure, CBDCs could be deposited directly into digital wallets nearly instantly. In the model where citizens had accounts at their central bank, stimulus payments from the central bank could be delivered in seconds, assuming adequate Know Your Customer (KYC) checks were in place at a national level. In the indirect two-tier model, where commercial banks remain central to the financial system, stimulus via CBDCs could still be faster than today’s model.

Regardless of the CBDC platform structure, the potential fiscal policy options that CBDCs unlock is impressive. Just as food stamps today act as a targeted solution for food insecurity, specially tailored CBDCs could do the same in the digital sphere; thus, CBDCs could be “tagged” for certain goods and services. For example, a government could create CBDCs that are targeted specifically to help a family make a home rental payment. CBDCs could allow policymakers to design more customized and precise support options for individuals and communities nationwide.

CBDCs could also be tailored to help stimulate the economy at a more macro level. If stimulus payments, for example, are designed to boost demand in the economy, time-bound CBDCs could encourage consumers to spend their money before it disappears and jumpstart the economy. In the case of the CARES Act, time-bound CBDCs could have incentivized Americans to spend their stimulus faster, further accelerating the economic recovery. Region-specific CBDCs could be created to help stimulate economies at a local scale, such as if a typhoon devastated a specific city. CBDCs could also be linked to specific industries that have received government support or subsidization in the past such as farming, green energy, or AI technology. 

Finally, specially tagged CBDCs could also be used for foreign aid to track spending and ensure aid is effectively distributed. While the numerous stimulus options that CBDCs create are potentially transformative, they are still just that—options. The technology behind CBDCs may enable additional economic policy options, but it is up to government policymakers to decide to issue CBDCs and to debate the merits of the new economic toolset before them. 

We at Ripple believe that governments should enable CBDCs to their fullest capabilities to support their constituents and unleash the next wave of financial inclusion and innovation.

To learn more about CBDCs, get in touch at cbdc@ripple.com or download Ripple’s CBDC whitepaper.

The post CBDCs Unlock Endless Fiscal Policy Options appeared first on Ripple.



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