by Bill Campbell, Portfolio Manager, International Fixed income, Doubleline Capital
October 2020
Over the past decade, central banks have added to their policy toolkit such practices as quantitative easing (QE) and, in Europe and Japan, negative interest rates. Formerly viewed as unconventional, these tools are now seen as necessary, even conventional, methods of monetary policy in a developed world struggling to produce inflation. For their next step into the unknown, central banks are readying a technology that could shatter what remains of the wall between sovereign government fiscal policy and central banking. This innovation is central bank digital currencies (CBDCs). These have the potential to become an inflation game changer, but the world’s central bankers should proceed with great caution. Implementation of CBDCs might open a Pandora’s box of unintended consequences, fiscal as well as monetary, overwhelming our would-be masters of money.
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