Ethan Lou: Why a central bank digital currency could be an inflation-fighter's best friend

I don't think Canada should have a central bank digital currency. Privacy implications are concerning.

Pierre Poilievre's recent bashing of the central bank gave rise to an interesting idea about the benefits of a currency in monetary policy.

Poilievre has criticized both the high inflation under the Bank of Canada policies and the idea of aCBDC, something he said he would outlaw if he were to become prime minister.

But what if the solution was the other way around?

We don't know what form aCBDC could take, if it would replace cash, or if it would replace electronic forms of payment. China has not done any large-scale testing.

It's easy to see that a digital currency at its most basic level has the potential to alleviate the biggest problem of monetary policy: that it is a blunt instrument.

A lot of the blame for the current bout of inflation has fallen on central banks, whose economic levers often have widespread effects that are difficult to predict and measurable only in the aftermath. Critics say the banks have gone too far by overstimulating the economy.

A central bank digital currency could potentially allow for micro-targeting by sector, region, and socio-economic class, with real-time feedback.

It is a good comparison to the disruption in advertising markets. Companies used to only target specific broadcast hours or publications based on the hope that the type of customer they wanted were tuning in or reading. The game was upended by Facebook, which allowed companies to advertise directly to groups that were hyper specific.

It would be the same general idea, even though we would probably never get that specific.

The Bank of Canada has a research paper on this topic.

A Bank of New York Mellon Co. senior strategist has written that the ground-level pandemicStimulus cheques could have been more efficient with aCBDC.

When the government gives money to people, Yu writes, it can be programmed in a way that funds contained within can only be spent in designated areas and have a certain expiry date.

A lot of that is possible without a digital currency. Singapore gave out S$320 million in vouchers during the Pandemic that could only be spent on the local tourism sector.

Time is the issue. Even if the government didn't have to co-ordinate with the tourism sector, it still required legislation, additional scrutiny, and co-operation with commercial banks.

When the data gets back through layers of organizations, you don't know if the efforts have been too little or too much. One of the main reasons the economy is in a mess is that Quantitative easing and the lowering of interest rates have the same limitations.

It isn't the Bank of Canada's fault. Even with all the models in the world, the economy is still a game with incomplete information.

Another game-changing feature of digital campaigns was the feedback, which allowed companies to fine- tune their techniques in real time. A central bank digital currency could do that.

There is a line between monetary and fiscal policy. Expanding the role of the Bank of Canada or moving it closer to the government's executive branch are possibilities.

There is no one who can mold this. The idea of inflation targeting was first introduced in 1990. The central bank's role has changed as monetary policy has evolved.

Stephen Poloz, the former Bank of Canada governor, wrote in his new book, The Next Age of Uncertainty, that the future might look a lot more turbulent, straining the capacity of current policy tools.

There are merits to thinking outside the box.

The author of Once a Bitcoin Miner: Scandal and Turmoil in the Cryptocurrencies Wild West is a journalist.

There is a person who says that there is a person who says that there is a person who says that there is a person who says that there is a person who says that there is a person who says that there is a person who says that there is a person who says that there is

For more stories like this one, sign up for the newsletter.

_____________________________________