Economy

Nation States May Turn to CBDCs As Inflation Shocks Global Economies

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Inflation in the U.S. has steadily increased in the last 12 months from 4.2% in April 2021 to more than double by March 2022. The White House recently announced that last month’s CPI hit a staggering 8.5%.

Source: Trading Economics

When we take a look at how inflation has progressed since the 1930s till now, we can see the various spikes occurring through uncertain periods in history. Post WWII, the Korean War, the 1970s oil crisis, Desert Storm, and the 2008 financial crisis were all considered to be the catalysts for inflation during these periods. 

Source: Trading Economics

The Biden Administration is claiming the cause for current inflation rates are due to Russia’s war on Ukraine. Press Secretary Jen Psaki told reporters that everyone should expect “inflation to be extraordinarily elevated” due to Putin’s price hikes in oil and gas. 

To combat rising inflation, Reserve Governor Lael Brainard stated in a speech from early April that “The committee will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”

Countries finding themselves in similar positions as the U.S. are taking their own measures to mitigate the effects of inflation through further fiat regulatory actions. For example, Brazil will be releasing a CBDC pilot program that will launch later this year in 2022. The Central Bank Digital Currency is reported to be based on the national currency but will have a fixed supply of tokens. No specifics were provided on how Brazil’s CBDC would be used but requiring a fixed supply for the currency suggests a move away from an inflationary currency to one that is deflationary.

Canada has also investigated the benefits of creating their own CBDC. The Bank of Canada’s (BOC) Director Dinesh Shah explained that consensus among nations to roll out CBDCs was not necessary and will not be required to operate outside of their home country. There is no confirmation yet whether Canada will move forward with a CBDC but the BOC is ensuring their due diligence before an official announcement. 

Canada’s inflation rate for March 2022 sits at 5.7% and will also require measures to combat rising inflation. Other countries may also follow suit in researching CBDCs in the future as inflation continues to affect all economies.

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Deniz Saat is an IT services specialist, technical writer and editor for BTC Times. His mission is to onboard as many people as possible into the Bitcoin overlay through education and content creation.

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