Spain’s Central Bank Report: Managing Monetary Policy Is Easier With Digital Currencies

Banco de España (BDE), Spain’s central financial institution, recently released a report stating that cryptocurrencies could potentially help improve the bank’s existing financial infrastructure, in addition to assisting it in the management of its financial policies.

Galo Nuño, the Director General for Economy at BDE, said in the report that using digital currencies to conduct banking transactions might have a positive effect on the Spanish economy. However, BDE’s document also mentions that only central bank issued digital currencies (CBDC) would be effective in better managing monetary policies.

“Potential Consequences” Of Introducing Digital Currencies

Notably, Nuño had been tasked with examining the “principle motivations for which a number of central banks are currently investigating the potential consequences of introducing such instruments.” Therefore, BDE’s document is not a comprehensive overview of cryptocurrencies and their broader impact on Spain’s economy.

The document, authored by Nuño, only addresses the “potential consequences and implications” of blockchain-based digital currencies for maintaining financial stability, and how they may contribute in managing bank reserves and monetary policy.

According to the findings of the report, cryptocurrencies could more effectively monitor the nation’s money supply compared to physical currency notes. In fact, Nuño notes that the BDE is currently unable to accurately track all the paper-backed money in circulation

Using Blockchain To Manage Interest Rates

The 9-page document further states that central banks regularly increase the money supply by printing new paper bills, however, they seldom focus on policies which would limit it. With the use of blockchain technology, banks would be better able to manage interest rates, the report explains.

Despite the potential benefits of using blockchain-based currencies, Nuño suggests that it might be better to do more research before adopting them. He adds that cryptocurrencies are a new financial concept, which traditional banks don’t fully understand.

In May, Luis Maria Linde, governor of Banco de España, had said that digital currencies “present more risks than benefits.” Commenting on the issues related to cryptos, the governor stated:

[Cryptocurrencies] 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.

However, Linde also stated in an event managed by Deloitte that blockchain technology might improve the efficiency of financial systems, given its potential to reduce operational costs.

In late June, Spanish lawmakers proposed a new bill in which they recommended utilizing blockchain technology to improve Spain’s public administration department, presumably because of its ability to eliminate a lot of the costly and inefficient paperwork required by traditional systems.