Central bank digital currencies have elicited mixed responses around the world, but for one former chair of the US Federal Deposit Insurance Corporation, they might offer a better tool to conduct monetary policy than existing methods. In an opinion piece published on Yahoo Finance, Sheila Bair called on the Federal Reserve to seriously evaluate the relative merits of issuing its own digital currency. Bair noted that current monetary policies have proven unable to stimulate broad-based economic growth and have only made the rich richer while the middle class continues to struggle.
One of Bitcoin’s inherent virtues is being inflation-resistant. This unique feature might be essential to help countries interested in adopting a passive monetary policy.
Bitcoin Controls the Inflation Rate
Only 21 million bitcoins will ever be mined. Therefore, Bitcoin is illiquid. However, Satoshi Nakamoto, purportedly the creator of Bitcoin, intentionally established this lack of liquidity to make the cryptocurrency inflation-resistant and to incentivize Bitcoin miners.
According to Professor Max Raskin, Bitcoin’s pre-commitment to an inflation rate that halves every four years makes the cryptocurrency an ideal model for governments choosing to adopt a passive monetary policy. Raskin writes in the Wall Street Journal,