“The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery.”
Meanwhile, the Consumer Price Index – a measure of inflation – rose 3.8 percent over the 2020/21 financial year, with petrol prices, health care, and fresh food among the biggest contributors.
However, Chris said it’s important to look at the CPI in the context of where it was a year ago: the CPI had seen a record quarterly fall of 1.9 percent in the June 2020 quarter, pushed down by things like free childcare.
Chris explained that, as CPI is a rate of change, there’s a ‘base effect’ which makes current inflation appear high compared to recent history. However, forward looking, investors are expecting inflation to remain at the lower end of the RBA’s target.
“Looking at the wider picture, our returns are driven by the overall environment we’re currently in and expected to be in looking forward, which the RBA sees as broadly positive,” he said.
After steadily gaining traction in various corners of the internet over the last decade or so, the term ‘cryptocurrency’ and the myriad things it entails, from Bitcoin to Dogecoin, are slowly moving further into the mainstream.
In turn, some central banks are looking at how to manage and regulate the digital currency space to ensure investors and consumers are protected.
The US Federal Reserve announced it’s working on a research paper examining the potential of a central bank digital currency (CBDC). While central bank money usually takes the form of either cash and reserves held at the central bank, the Federal Reserve explained, a CBDC is defined as a “generic term for a third version of currency that could use an electronic record or digital token to represent the digital form of a nation’s currency”.
CBDC would be issued and managed directly by the central bank, and used for various purposes by individuals, businesses, and financial institutions.
With the research paper to be delivered in September, the Chair of the Federal Reserve, Jerome Powell, said CBDC could help eliminate the need of other digital currencies.
Speaking at a hearing before the US House of Representatives Financial Services Committee in July 2021, he said, “You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies, if you had a digital US currency. I think that’s one of the stronger arguments in its favour.”
The RBA, too, is working to explore the potential use of CBDC. It announced in late 2020 that it would collaborate with organisations including the Commonwealth Bank and National Australia Bank to develop a proof of concept for the issuing of a tokenised form of CBDC.
So what do we need to know?
As Chris explained, given the central banks are still working on research papers and projects, it will be some time before they get to the point of issuing digital currencies. In the meantime, if you’re exploring cryptocurrency as an investment, it’s important to look beyond the hype and do your research.
“A common phrase you hear in investments is, ‘if you don’t understand it, don’t invest in it’,” Chris said.