Central banks could reportedly use cryptocurrencies to “aggressively cut interest rates,” and mitigate the potential impact a financial crisis could have. This, according to research conducted by Morgan Stanley.

The investment bank’s research was led by strategist Sheena Shah. It identified various ways central banks could use their own cryptocurrencies, but clarified the research wasn’t “intended to suggest where we think a digital fiat currency could be implemented or all the reasons why.”

According to Business Insider, the most eye-catching potential application central banks may have for what would presumably be fiat-backed cryptocurrencies is in the area of monetary policy. Morgan Stanley’s research found that these tokens could help central banks take interest rates deep into the negative territory, a move that could be beneficial in the event of a financial crisis.

During the 2008 financial crisis, central banks throughout the world aggressively cut interest rates to protect consumers and lenders from the event’s impacts. A handful of central banks even took interest rates into negative territory, to a low of -0.5 percent.

Per Shah and her team, a monetary system that is completely based on digital currencies could enable deeper negative rates. The team wrote:

“Freely circulating paper notes and coins (cash) limits the ability of the central banks to force negative deposit rates. A digital version of cash could theoretically allow negative deposit rates to be charged on all money in circulation within any economy.”

Morgan Stanley's team

Late last year, UBS Investment Bank argued that when the next financial crisis hits, financial institutions will have to cut interest rates to a low of -5 percent to mitigate its impacts. Using traditional monetary policy tools, Morgan Stanley’s researchers argue, this wouldn’t be possible.

Central bank cryptocurrencies, however, would provide the organizations an outlet. The researchers acknowledge, however, that the idea could have potential drawbacks, as “deep and long-standing negative rates eventually are problematic for banks.” The team stated:

“Central banks would then have to go direct to currency users to implement monetary policy, reducing leverage in the system significantly and cutting GDP growth.”

Morgan Stanley's team

Some financial institutions remain skeptical about cryptocurrencies in general. Last year, the head of Germany’s Bundesbank, Jens Weidmann, warned cryptocurrencies like bitcoin could potentially make financial crisis even more devastating. He added, however, he believes central banks will create their own cryptos.

Sheenah Shah’s previous research, as covered, revealed that most cryptocurrency trading moves through Malta-based exchanges, partly thanks to the world’s number one cryptocurrency exchange, Binance.