Central Banks’ Monetary Policy in the Face of the COVID-19 Economic Crisis: Monetary Stimulus and the Emergence of CBDCs

Abstract

This article analyzes the monetary policy of major central banks during the economic crisis generated by the COVID-19 pandemic. Rising public debt in many countries is being financed through asset purchases by monetary authorities. Although these stimulus policies predate the pandemic, they have been significantly boosted as many governments face large financing needs. We have been in a low interest rate environment for years and some governments have issued debt securities at negative rates. In addition, the rise of decentralized cryptocurrencies, based on blockchain technology, has created greater competition in the international monetary system and many governments have considered the creation of centralized virtual currencies, known as central bank digital currencies (CBDCs). We will analyze some relevant cases, with an emphasis on the digital euro project. The methodology is based on the analysis of the evolution of monetary variables. Pearson’s correlation will be used to establish some relationships between them. There is a strong similarity in the expansionary monetary policies of central banks. Although the growth of the money supply has not been passed on to the CPI, it has been passed on to the financial markets and the price of assets such as Bitcoin or gold.