Digital Money News – updates and articles on CBDCs, monetary politics and state digital currencies

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  • CBDC Govcoins – Has The Economist unveiled the endogenous engine of capitalism? ( here )
  • Digitales Zentralbankgeld – Geld zwischen Schleier und Tabu (-1-) (-2-) (-3-) ( -4- ) 16-5-22 Digital euro could come as soon as 2026 – ECB official – Commenting on the recent market volatility, Fabio Panetta also said stablecoins were still “vulnerable to runs,” just as investing in cryptocurrencies carried certain risks.

…”…Panetta said the ECB could start the development and testing of solutions toward providing a digital euro for members of the European Union in 2023, a phase that could take up to three years. He added that making the digital currency legal tender and for use in P2P payments could help promote adoption. Panetta also commented on the recent market volatility for cryptocurrencies, with Terra USD (UST) depegging from the U.S. dollar and the price of many major coins including Bitcoin (BTC) dropping. According to the ECB official, stablecoins, including Tether (USDT), were not “risk-free” and still “vulnerable to runs,” just as investing in cryptocurrencies carried certain risks. … Estimates from many EU officials suggest that legislation and policy focused on the launch of a digital euro could be coming within five years. Panetta said in March that Europeans would be more likely to accept a digital euro aimed at addressing their payment needs, and so also accepted in physical and online stores.

.Related: Chairman of the Digital Euro Association: ‘The primary aim of the digital euro is still not clear’ pdf 14-4-2022 CBDCs in emerging market economies by Sally Chen, Tirupam Goel, Han Qiu and Ilhyock Shim

In recent years, emerging market economy (EME) central banks have increasingly engaged in projects related to central bank digital currencies (CBDCs). The stage of their engagement – research, pilot or launch – varies according to differences in country circumstances, including the availability of digital infrastructure, their focus among different policy objectives, and the attendant motivations and concerns. This volume contains papers that were prepared for a meeting of Deputy Governors of central banks from EMEs, which took place on 9–10 February 2022 and explored issues such as: the main objectives of introducing CBDCs; the guiding principles of CBDC design and data governance; challenges of CBDCs for monetary policy, financial intermediation and financial stability; the implications of CBDCs on financial inclusion; and the cross-border aspects of CBDCs. Discussions at the meeting also drew on insights from a survey on the roles of and considerations for CBDCs in EMEs.

Many papers in this volume discuss the key motivations for CBDC issuance as well as the primary concerns. Achieving greater payment system efficiency is at the heart of EME central banks’ motivations. EME central banks also place great emphasis on financial inclusion and are concerned about cyber security risks, potential bank disintermediation and cross-border spillovers. A related topic discussed is the value added of CBDCs for existing payment systems, and country papers offer concrete examples of deliberations on this topic at the current juncture. Another area covered by the papers in this volume is CBDC design considerations. Many EME central banks are of the view that careful design can keep risks to a minimum, while yielding net benefits. 1-4-2022 Barclays addresses potential CBDC fragmentation in new paper – Barclays’ paper sets out a methodology for the mitigation of potential fragmentation risk presented by central bank digital currency (CBDC), through an architecture that places CBDC and commercial bank money on a similar footing.

“Written by two members of the Barclays Chief Technology Office, managing director, Lee Braine, and enterprise architect in advanced technologies, Shreepad Shukla, the paper explores how ecosystems can provide a “common programmability layer” that interfaces with account systems at both commercial banks and the central bank. By adopting and extending the Bank of England’s ‘platform model’ for a potential UK CBDC, it considers how a central bank core ledger, an interface to that ledger, and authorised Payment Interface Providers which allow users access to CBDC, would function in this proposed architecture … Fragmentation risk was recently raised by respondents to the Bank of England’s discussion paper…”…

central bank digital currency (CBDC)
finextra/Barclays 3-2022 Fed governor calls crypto ‘just electronic gold’ by Jennifer Schonberger

…”…Federal Reserve Governor Christopher Waller on Friday played down the functionality of cryptocurrencies while again expressing his skepticism about adopting a central bank digital currency when consumers already have access to fast payment systems. … He likened research papers on CBDCs to infomercials, questioning why the U.S. would need a CBDC. “I’m trying to focus on why do we really need it as opposed to look at all the bells and whistles that come along with it,” said Waller. “I haven’t been convinced about yet. It’s not saying that I can’t be, but I haven’t seen that on retail CBDC.” While the U.S. mulls over the pros and cons of adopting a CBDC, other central banks around the world are also toying with the idea and some are already testing them. Many have called the race to adopt a CBDC the “digital currency space race” where those that fall behind may see their currencies threatened. But Waller says he doesn’t think other central bank digital currencies, notably China’s, presents a risk to the U.S. dollar. … Waller said he could see how retail direct access to a U.S. CBDC at the Fed could threaten currencies in other countries if foreigners are permitted to have accounts at the Fed. “There’ll be such a rush of demand for these accounts that other governments and other central banks would have a problem,” he said. He added that any currency that’s pegged to the U.S. dollar, or a stablecoin that’s pegged to the dollar, imports U.S. monetary policy and amplifies U.S. policy not diminishes it. Waller’s comments come after Fed Chair Jay Powell spoke earlier this week on a CBDC …”… 3-2022 Bank of England and Massachusetts Institute of Technology joint Central Bank Digital Currency collaboration – The collaboration forms part of the Bank’s wider ‘research and exploration’ into CBDC, and will be focused on exploration and experimentation of potential technology approaches 2-2022 Floppt der digitale Euro der EZB? von Peter Bofinger

Der „digitale Euro“ ist eines der großen Zukunftsprojekte der Europäischen Zentralbank (EZB). Fabio Panetta, das hierfür verantwortliche Mitglied des EZB-Direktoriums, sieht darin ein digitales Symbol des Fortschritts und der Integration in Europa. Die EZB erwartet, dass mit dem digitalen Euro das Bezahlen einfacher wird. Zudem könne der Übergang der europäischen Wirtschaft in das digitale Zeitalter unterstützt werden.

  • Die Europäische Zentralbank (EZB) erwartet, dass mit dem digitalen Euro das Bezahlen einfacher wird.
  • Doch wenn sich der digitale Euro gegenüber Angeboten der „BigTechs“ behaupten will, reicht es nicht aus, ein Notenbankkonto für jedermann zu schaffen.
  • Die Gefahr ist groß, dass die vollmundig angekündigten Pläne zum digitalen Euro zu einem großen Flop werden, der der Reputation der EZB massiv schaden würde. 16-3-2022 Edward Snowden Slams Central Bank Digital Currencies: ‘The Risk Is Very Easy to Illustrate’ – Whistleblower Edward Snowden compared the danger of CBDCs to Scrooge McDuck’s giant money magnet in the cartoon “DuckTales.” By Mathew Di Salvo

…”…With CBDCs, he said, “We don’t realize that we have immediately been subordinated and collectivized to the central actor in the economy. The dollar is that today in its electronic form….”… 9-3-2022 Biden orders government to study digital dollar, other cryptocurrency risks By Andrea Shalal and Katanga Johnson 9-3-2022 Biden considers digital dollar—here’s how it could differ from regular money
Digital currency may have advantages but could also be tool for surveillance. by Jon Brodkin D 2-2022 Digital Rupee – Will commercial banks still be needed for credit creation? – With the digital rupee, the RBI would be able to the increase the effectiveness of monetary policy by directly changing interest rates on deposits and/or lending – Sashi Sivramkrishna 3-2022 Has yuan become Russia’s new dollar? by Brian McGleenon

Russia could use the Chinese yuan to bypass the crippling sanctions and SWIFT payment ban imposed by the US and its allies. One rouble now buys less than one US cent, causing ordinary Russians to flock to stores of value such as gold and bitcoin (BTC-USD) to protect themselves from the fallout. As Putin’s armoured divisions roll closer to Kyiv, his country’s economy rolls closer to the abyss, and speculation has grown that Moscow will resort to using cryptocurrencies as a financial back-channel. However, there is simply not enough volume and liquidity within crypto markets to offset the disruption that sanctions will have on the Russian economy. This leaves the Kremlin with another option: to use the Chinese yuan and Beijing’s CIPS international payment system for cross border trade. Disconnecting Russia from world finance could thus create an unwanted side effect for the west, the birth of a new global economic system based upon the Chinese yuan.

Steve H Hanke, professor of applied economics at Johns Hopkins University, told Yahoo Finance UK that “disconnecting Russia from the dollar-based system won’t have much of an impact on the dollar initially, but in the long run it might be a different matter”. The senior economist added that the act of removing Russia from the SWIFT dollar-denominated international payments system “has weaponised and contaminated SWIFT”. “This will make room for challengers to the dollar-denominated international system.”

The major challenger is China’s Cross-border Interbank Payment System, or CIPS. China’s competitor to the dollar-based SWIFT system was created in 2015 and currently only handles a fraction of the international claims settlements that are completed by the SWIFT system. But this imbalance could begin to tilt in China’s favour if Russia is forced to rely upon it for international trade.

Read more 2-2022 Central bank digital currencies: defining the problems, designing the solutions by Fabio Panetta

…”…Some have suggested that innovative private payment solutions such as stablecoins could, if properly regulated, make CBDCs superfluous. However, confidence in stablecoins would also depend on the ability to convert them into central bank money,unless stablecoin issuers were allowed to invest the reserve assets in risk-free deposits at the central bank. But this would be tantamount to outsourcing the provision of central bank money, which would endanger monetary sovereignty. Moreover, in the absence of public money, stablecoins could exacerbate the “winner-takes-all” dynamics inherent in payment markets, with adverse consequences for the functioning of the payments system. And stablecoins’ potentially large investments in safe assets could affect the availability of these assets. This could in turn have an impact on market functioning and real interest rates, with undesirable implications from a monetary policy perspective. Other threats to monetary sovereignty could emerge in the absence of a domestic digital currency. If a foreign CBDC were to be widely adopted, this could lead to digital currency substitution. This risk would be higher for small countries with unstable currencies and weak fundamentals, especially if the CBDC were issued in a major economy. But it could eventually also affect leading currencies. Such risks are not imminent, but they should not be underestimated. Just as the US dollar overtook the pound sterling as the leading reserve currency within only a decade of the end of the First World War, digital innovation may give rise to powerful new foreign contenders, with disruptive consequences for those markets that are not prepared to face the digital challenge. …”… 14-2-2022 ECB Chief Lagarde Says Digital Euro Will Not Replace Cash — But Could Offer Convenient, Cost-Free Means of Payment -“A digital euro would give you an additional choice about how to pay and make it easier to do so, contributing to accessibility and inclusion” – by Kevin Helms 2-2022 China’s CBDC nearly completes in a single day eNaira’s 3month’s worth of transaction – The uptick in transaction is being aided by the Beijing Winter Olympics. by Ubah Jeremiah Ifeanyi 8/2021 Fed Governor Waller ‘Highly Skeptical’ of a Fed Digital Coin By Craig Torres

Federal Reserve Governor Christopher Waller said he is “highly skeptical” about the need for the U.S. central bank to develop a digital currency. “While CBDCs continue to generate enormous interest in the United States and other countries, I remain skeptical that a Federal Reserve CBDC would solve any major problem confronting the U.S. payment system,” Waller said…. 1-2022 China is pushing for broader use of its digital currency – by Arjun Kharpal 8/2021 central-banks-need-to-regulate-big-tech-s-dna-or-risk-the-next-financial-crisis 7/2021 Die EZB hinkt mit dem digitalen Euro etwas hinterher – Eine Studie sieht eine Gefahr für Überweisungsgeschäft der Banken. von Wolfgang Unterhuber 25/7/2021 Bye-bye, bitcoin: It’s time to ban cryptocurrencies by Robert A Manning

I’ve never quite understood why cryptocurrencies are worth anything. Of course, the untraceable payments are worth a lot to ransomware hackers, cyber criminals and money launderers. But dollars, euros and yen are backed by nations’ respective treasuries. If someone invents a cryptocurrency, any value is based solely on convincing others it has value. But is it a usable means of exchange? International banking officials say cryptocurrencies such as bitcoin are speculative assets, not sustainable, usable money. …

The eminent economic analyst Martin Wolf outlined in a recent Financial Times essaythe risks and chaos of a wild world of unstable private money is a libertarian fantasy. According to a recent Federal Reserve paper, there are already some 8,000 cryptocurrencies. It’s a new mom-and-pop cottage industry.

How should governments respond? Wolf argues that central banks (e.g., the U.S. Federal Reserve) should create their own official digital currencies — central bank digital currencies (CBDC) and make cryptocurrencies illegal.

I’ve been asking the same question: Who needs cryptocurrencies? Apart from the nasty uses and wild speculative value swings, data mining to produce bitcoin is a serious environmental hazard, using huge amounts of electricity by rows and rows of computers.

Governments should guarantee safe, stable and usable money. Already, according to the Atlantic Council GeoEconomics Center’s CBDC Tracker, 81 countries representing 90 percent of world gross domestic product are at various stages of researching and exploring the adoption of digital currencies. 19/7/2021 Stablecoins should be regulated like banks and central bank digital currencies could tame these ‘wildcat’ crypto tokens, according to research from the Fed and Yale by Camomile Shumba

  • Researchers at the Federal Reserve and Yale University have released a report titled ‘Taming the Wildcat Stablecoins.’
  • The report suggested stablecoins should be regulated like banks, and promoted CBDCs.
  • The report preceded the Treasury’s working group meeting Monday on stablecoins. 19/7/2021 The next big financial crisis could be triggered by climate change – but central banks can prevent it by Garth Heutel, Givi Melkadze,Stefano Carattini

In 2008, as big banks began failing across Wall Street and the housing and stock markets crashed, the nation saw how crucial financial regulation is for economic stability – and how quickly the consequences can cascade through the economy when regulators are asleep at the wheel.

Today, there’s another looming economic risk: climate change. Once again, how much it harms economies will depend a lot on how financial regulators and central banks react.

“Climate change’s impact on economies isn’t always obvious. Mark Carney, the former governor of the Bank of England, identified a series of climate change-related risks in 2015 that could shake the financial system. The rising costs of extreme weather, lawsuits against companies that have contributed to climate change and the falling value of fossil fuel assets could all have an impact.

Nobel Prize-winning U.S. economist Joseph Stiglitz agrees. In a recent interview, he argued that the impact of a sharp rise in carbon prices – which governments charge companies for emitting climate-warming greenhouse gases – could trigger another financial crisis, this time starting with the fossil fuel industry, its suppliers and the banks that finance them, which could spill over into the broader economy.

Our research as environmental economists and macroeconomists confirms that both the effects of climate change and some of the policies necessary to stop it could have important implications for financial stability, if preemptive measures are not undertaken. Public policies addressing, after years of delay, the fossil fuel emissions that are driving climate change could devalue energy companies and cause investments held by banks and pension funds to tank, as would abrupt changes in consumer habits.

The good news is that regulators have the ability to address these risks and clear the way to safely implement ambitious climate policy….”… 15/7/2021 Euro CBDC looks to leave energy-intensive Bitcoin in its digital dust Lucas Cacioli

The European Central Bank has launched a two-year project to prepare for the potential issuance of a digital euro. The central bank digital currency would be supported by an underlying architecture with a negligible environmental impact compared to Bitcoin’s hugely energy-intensive blockchain. Fast facts:

  • The ECB has begun the investigation phase of a digital euro design process, according to a press release. That phase is expected to last for two years, during which time the Eurogroup  an informal grouping of eurozone finance ministers  will design a CBDC with a focus on usability, guided by technical advice from merchants and intermediaries.
  • The ECB tweeted: “Our experimental work has already allowed us to identify possible ways to protect privacy. It has also shown that the energy needs of the infrastructure would be negligible compared with the energy consumption and environmental footprint of crypto assets, such as Bitcoin.”
  • Bitcoin’s carbon footprint has become a growing concern for environmentally-conscious investors, to the extent that the most recent crypto market crash began when Tesla founder Elon Musk suddenly declared that the electric car maker would no longer accept Bitcoin as payment due to environmental concerns.
  • The ECB also said it had identified a number of ways to proceed with designing a digital euro that would protect citizens’ privacy, in compliance with General Data Protection Regulation requirements.
  • The news comes as France is calling for more stringent Europe-wide crypto regulations. French markets regulator the Autorité des Marchés Financiers has proposed that EU governments give the responsibility of regulating cryptocurrencies to the Paris-based European Securities and Markets Authority rather than national regulators. 15/7/2021 RIPPLE’S XRP DOWN ALONG WITH CRYPTO MARKET AHEAD OF CBDCS? by Rick Steves
The prospective competition from central bank digital currencies may come into sharp focus, said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

It is never fully understood what fundamentals are really driving the markets. The cryptocurrency market is down this week, following an almost established narrative in which prices tumble every month since January. China’s government crackdown on Bitcoin has put pressure on the market, with June’s spot volumes plummeting by 42.7% and total derivative volumes decreasing 40.7%. There are also fears that Grayscale’s Bitcoin Trust conversion into an ETF could trigger a downward move in Bitcoin and the digital asset market in general. The European Central Bank, however, has just given the green light for the digital euro project. The prospective competition from central bank digital currencies may come into sharp focus, said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. 9/7/2021 IMF, World Bank and BIS champion central bank digital currencies at G20 – A new report released by the triumvirate of global finance argues that central bank digital currencies will benefit worldwide development. Marie Huillet 9/7/2021 Currency and control: why China wants to undermine bitcoin by Martin Farrer

Beijing’s crackdown on cryptocurrencies has captured headlines, while behind the scenes its reserve bank set up its own digital currency. Few would dispute that China’s recent crackdown on cryptocurrency trading and mining has contributed to the recent plunge in the value of bitcoin and other cryptos. 9/7/2021 EU-Datenschützer: Digitaler Euro sollte so anonym wie Bargeld sein

​Die EU-Datenschutzbeauftragten wollen verhindern, dass über den geplanten digitalen Euro Nutzertransaktionen im gesamten Zahlungssystem verfolgt werden können.​ 9/7/2021 BIS, World Bank, IMF urge CBDC interoperability for cross border payments – Today the Bank for International Settlements (BIS) published a paper on cross border central bank digital currency (CBDC) in conjunction with the IMF and World Bank. It urges collaboration in designing CBDCs to enable cross border payments. 9/7/2021 Pandemic has accelerated the rollout of CBDCs by 5 years, says blockchain firm – “There is also no doubt in our mind that a major central bank will soon launch a digital currency and we expect this to happen within the next three years,” said Guardtime. Turner Wright 5/7/2021 Kurz vor der Entscheidung der Europäischen Zentralbank (EZB) hat sich die deutsche Kreditwirtschaft geschlossen für die Einführung des digitalen Euro ausgesprochen – als Ergänzung zum Bargeld. 4/7/2021 The digital euro: Something Europe can’t afford to get wrong – To become a global digital leader, Europe needs a diverse and competitive digital ecosystem. by Agata Ferreira, Robert Kopitsch, Philipp Sandner

Europe knows it will have to embrace a digital euro soon. To become a global digital leader and avoid dependence on American and Asian technological infrastructures, European policymakers and regulators have to make progressive decisions. A critical stumbling block for Europe’s digital economic thinking is so-called stablecoins. Stablecoins can be privately issued and have the potential to become globally accepted and systemically relevant, disrupting long-established financial systems. Consequently, today’s political discussions surrounding stablecoins are dominated by concerns over financial stability and orderly monetary policy. … Current regulatory plans undercut innovation and favor big banks and Big Tech …”… 3/7/2021 Wozu ein digitaler Euro, Dollar oder Yuan? – Immer mehr Zentralbanken denken über eigene digitale Währungen nach. Was soll das bringen, wo doch alle Welt schon jetzt bargeldlos zahlt? Die wichtigsten Antworten Von Julian Heißler

… “Was spricht gegen die DZBG? Neben den bereits erwähnten Bedenken bezüglich der Privatsphäre würde eine digitale Zentralbankwährung auch den Charakter der Notenbanken verändern. Je nach konkreter Ausgestaltung der DZBG könnten sie für Nutzerinnen und Nutzer faktisch die Rolle einer Geschäftsbank übernehmen, bei der sie ihr Erspartes direkt aufbewahren. Es ist eine Vorstellung, für die sich manche Kritiker des Bankensystems durchaus erwärmen können, doch welche Auswirkungen eine solche Umgestaltung des Finanzsektors hätte, ist offen.

Eine andere Sorge betrifft die Volkswirtschaften kleinerer Länder mit eigener Währung. Ein digitaler Dollar könnte sich als Zahlungsmittel auch in anderen Staaten durchsetzen und de facto an die Stelle von weniger stabilen lokalen Währungen treten. Damit könnte den örtlichen Zentralbanken die Fähigkeit genommen werden, die Geldmenge souverän zu regulieren – mit potenziell heftigen Auswirkungen auf die Wirtschaft. Digitale Währungen könnten also nicht nur viele Probleme lösen, sondern auch neue schaffen.”… 24/6/2021 BIZ befürwortet kontenbasiertes digitales Zentralbankgeld 23/6/2021 BIZ legt gegen Kryptowährungen nach: Kritik an „Stable Coins“ – Die Chef-Zentralbanker sehen kaum Vorteile in privatem Cyberdevisen. Besser weg kommen staatliche Ansätze für digitales Geld. Felix Holtermann

see also on GaiaMoney >

(nur) deutsche Artikel – DigitalesZentralBankGeld 2015 Geldsystem: Hat´s Herr Bofinger verstanden? Geld, Macht, ExpertInnen. “Gold ist Geld – alles andere ist Kredit” (J.P. Morgan) von Pregetter Otmar 2019 Der Wettlauf um eine offene globale Zahlungsinfrastruktur – Ein von Facebook angeführtes Konsortium entwickelt mit Libra eine neue Kryptowährung, die bald weltweit Standards setzen könnte. Libra stößt eine in Europa längst überfällige Debatte an. von Franz v. Weizsäcker, Uta Meier-Hahn, Lars Wannemacher 2019 Digitales Zentralbankgeld als neues Instrument der Geldpolitik – Von Andreas Hanl, Jochen Michaelis

… “Die Grundidee des digitalen Zentralbankgelds ist denkbar einfach: Private Haushalte und Unternehmen erhalten einen direkten Zugang zur Zentralbankbilanz, indem sie bei der Zentralbank ein Konto eröffnen und Einlagen bilden können. Die Idee des „Kontos für Jedermann bei der Zentralbank“ ist nicht neu, sie findet sich zum Beispiel bei Tobin.”…  2019  Warum können wir unser Geldsystem nicht richtig verstehen?  von Michael Stöcker

“Es ist schon erstaunlich, dass nicht nur Laien ein Verständnisproblem mit einem Medium haben, mit dem wir alle wie selbstverständlich tagtäglich umgehen, sondern insbesondere auch diejenigen, die sich hiermit eigentlich auskennen müssten: Banker und Zentralbanker. Sogar die Deutsche Bundesbank und die Schweizer Nationalbank (SNB) hatten bis zu Beginn der Finanzkrise eine falsche Darstellung der Geldschöpfung in ihren Unterrichtsmaterialien verbreitet und somit zur Verwirrung einen nicht unwesentlichen Beitrag geleistet. Die SNB hat diese Fehler erst 2016 richtig gestellt.”…

…”Zu Ihrer Frage nach dem fiktiven Kapital: Ja, es gibt sicherlich zu viel fiktives Kapital und es wird auch weiterhin viel zusätzliches fiktives Kapital über den Bankkredit geschaffen, um Bestandsassets zu erwerben (Assetinflation). Dagegen kann man z. B. mit verstärkten EK-Vorschriften der Banken vorgehen (siehe hierzu der Vorschlag von Neel Kashkari) sowie einem antizyklischen Kapitalpuffer bei überdurchschnittlicher Entwicklung der Assetpreise.

Über ein zentralbankfinanziertes Bürgergeld kann man letztlich einen großen Teil des fiktiven Kapitals erhalten, da hierdurch mittelbar auch die Schuldner liquide gehalten werden und somit Abschreibungen vermieden werden können (indirekte Rekapitalisierung des Finanzsektors). Dadurch entsteht im ersten Schritt zwar zusätzliches fiktives Kapital in Form von Staatsschulden/Zentralbankgeld, aber dieses kann über eine zu reformierende Erbschaftssteuer ex post wieder abgeschöpft werden.” PDF 2020 Central bank digital currencies: foundational principles and core features -by BIS Basel 2020 Der Aufstieg des digitalen Vollgelds der Zentralbanken (CBDC)
Dies ist der zweite Teil des Entwurfs einer Theorie dominanten Geldes. Er behandelt den gegenwärtig einsetzenden vierten Tidenwechsel in der Zusammensetzung des Geldangebots in moderner Zeit. Das heute noch alles dominierende Bankengeld (Giralgeld) kann die Probleme, die es im Zuge seiner Expansion geschaffen hat, aus eigenen Stücken nicht lösen. Im Interesse der Wiedergewinnung wirksamer Geldpolitik wird sich digitales Vollgeld der Zentralbanken (DV/CBDC) als kommendes dominantes Geld gegen andere Optionen durchsetzen.

digitales krisenmanagement 2019 9/2020 Bericht der EZB zum Thema „Digitaler Euro“ Martin Summer, Beat Weber

… “Ein digitaler Euro, also für alle zugängliches elektronisches Zentralbankgeld, wäre eine Innovation, die den Konsumentinnen und Konsumenten des Euroraums in einer zunehmend digitalisierten Welt ein sicheres digitales Zahlungsmittel zur Verfügung stellen würde. Ein digitaler Euro würde zusätzlich die strategische Autonomie für Europa im Bereich von digitalen Zahlungsmitteln stärken und die Abhängigkeit von internationalen elektronischen Zahlungsanbietern vermindern.” 9/2020 Jörg Krämer: Digitales Zentralbankgeld macht den Staat mächtiger
Nach China nehmen nun auch westliche Notenbanken digitales Zentralbankgeld in den Fokus. Doch dies ist mit mehreren Risiken verbunden.

…”Grundsätzlich kann man all diese Probleme mit entsprechenden Vorkehrungen vermeiden. So könnten deutlich negative Zinsen auf Zentralbankguthaben verboten werden. Aber wie glaubwürdig sind solche Sicherungen im Euro-Raum, wo schon so viele Regeln gebrochen wurden? Im Zweifel macht digitales Zentralbankgeld den Staat auf Kosten seiner Bürger mächtiger. Und das ohne Not. Schließlich können die Bürger mit ihren Bankguthaben schon längst per Mausklick zahlen, wobei der Wettbewerb die Digitalisierung dieses privaten Geldes ohnehin vorantreibt.”

Mehr: Weidmann zeigt Skepsis gegenüber dem E-Euro. 11/2020 Digitaler Euro rückt pandemiebedingt in den Fokus Angelika Breinich-Schilly

Die Corona-Pandemie hat eine Abkehr vieler Menschen vom Bargeld ausgelöst. Damit geht auch die Diskussion über die Notwendigkeit eines digitalen Euros in die nächste Runde. Ob dieser kommt, lässt der EZB-Rat noch offen. Doch Vor- und Nachteile werden gerade ausgelotet. 12/2020 DIGITALES ZENTRALBANKGELD: VOM BITCOIN ZUM DIGITALEN EURO

“Mit ihrem Report zum digitalen Euro schürt die EZB die Debatte um die Digitalisierung des Geldes. Wie genau das Geld des 21. Jahrhunderts aussehen wird, ist allerdings noch nicht ausgemacht. Vielmehr ist gegenwärtig ein Innovationswettbewerb zwischen Zentralbanken, Tech-Unternehmen sowie (dezentralen) Kryptowährungen zu beobachten. Der Beitrag gibt einen Überblick über die aktuelle Debatte zur Einführung von digitalem Zentralbankgeld…

… Die Idee von allgemeinzugänglichen Zentralbankgeld ist nicht neu. Ihr stand bislang allerdings die Befürchtung entgegen, dass eine solche digitale Währung den Geschäftsbanksektor gefährden würde. Die Existenz einer CBDC würde nämlich in Konkurrenz zu den Dienstleistungen der Geschäftsbanken treten. Für den einzelnen Anleger könnte es attraktiver werden, seine Einlagen von seinem Geschäftskonto abzuziehen und sie risikolos in CBDCs zu überführen. Dieser Effekt würde nicht nur die Geschäftsbanken, sondern die gesamte Finanzwirtschaft betreffen. Denn ein Mangel an Einlagen würde sich auf die Kreditvergabemöglichkeiten der Geschäftsbanken auswirken.” … PDF hier 6/2021 »Wir werden niemanden zwingen, mit dem digitalen Euro zu zahlen« – Bitcoin, Libra oder Chinas Yuan – auch die EZB treibt ihre Pläne für den digitalen Euro voran. Ein Selbstgänger ist das allerdings nicht, wie Notenbankdirektor Fabio Panetta einräumt. 3/2021 Europäische Zentralbank: Wie steht es um den digitalen Euro?– Von Lena Grale, Jonas Groß, Philipp Sandner

2021 Ob die EZB tatsächlich ein Projekt zum digitalen Euro starten wird, will sie erst Mitte 2021 entscheiden. Trotzdem hat EZB-Präsidentin Lagarde bereits mit konkreten Aussagen zum Vorhaben überrascht. Sie betonte, dass der digitale Euro kommen werde und sie die Einführung in den nächsten fünf Jahren erwarte (Siedenbiedel, 2021). China begann dagegen bereits 2014 mit ersten CBDC-Analysen. Bis zum Start der fortgeschrittenen Systemtests 2020 hat es sechs Jahre gedauert. Auch Schweden beschäftigt sich schon seit 2017 mit einer „e-Krona“. Der langwierige Prozess deutet darauf hin, dass es sich auch beim digitalen Euro um ein komplexes Unterfangen handelt – zu unklar sind derzeit noch die Implikationen auf den Finanzsektor und makroökonomische Auswirkungen. Aus diesem Grund ist eine gewisse Vorsicht der EZB durchaus verständlich. Allerdings muss auch betont werden, dass Schweden und China einen deutlichen Vorsprung haben. Wir schätzen den Vorsprung Chinas auf vier bis sechs Jahre.

Für die EZB stehen zunächst interne Analysen an, um grundsätzliche Anforderungen an das Design des digitalen Euros abzustecken. Daraus lassen sich erste Schlussfolgerungen für den Einfluss einer CBDC auf den Finanzsektor ableiten. Um eine Disruption des Finanzsektors zu verhindern, steht z. B. ein CBDC-Haltelimit (Der Spiegel, 2021) oder eine zweistufige Verzinsung (Bindseil, 2020) im Raum. Je attraktiver der digitale Euro für Endnutzer:innen letztlich sein wird, desto höher wird der negative Effekt auf Bankeinlagen ausfallen. Auch die technische Umsetzung des digitalen Euros ist noch unklar. Möglich wäre die Nutzung einer Distributed-Ledger-Technologie (DLT), die auch programmierbare Zahlungen ermöglichen würde, etwa in Form von Mikrozahlungen oder von Maschine-zu-Maschine-Zahlungen, die durch die zunehmende Digitalisierung von Geschäftsvorfällen immer mehr von der Industrie nachgefragt werden. Allerdings scheint die EZB momentan die Nutzung einer DLT nicht zu priorisieren, deshalb ist hier der private Finanzsektor gefragt. 25/3/2021 Fabio Panetta, Ulrich Bindseil Die Möglichkeit einer Digitalisierung des Euro weckt hohe Erwartungen. Sie wirft aber auch Fragen auf. Bei der EZB nehmen wir die Sorgen der Menschen ernst und müssen darum auch mit Missverständnissen aufräumen. Gegenwärtig kursieren drei Irrtümer zum digitalen Euro: Erstens, dass die EZB beabsichtigt, das Bargeld abzuschaffen und im Anschluss aus geldpolitischen Gründen die Zinsen noch weiter in den negativen Bereich zu senken. Zweitens, dass ein digitaler Euro die Banken mit ihrem Einlagen- und Kreditgeschäft verdrängen würde. Drittens, dass dem digitalen Euro kein tragfähiges Geschäftsmodell zugrunde liegen würde. 19/4/2021 Die Strategie der EZB beim digitalen Euro CBDC Rudolf Linsenbath

“Im Vergleich zu den bisherigen Zahlverfahren und Werten soll der Bürger mit der CBDC neben Bargeld einen weiteren Zugang zu Zentralbankgeld erhalten. Die CBDC ist aber bewusst als Ergänzung geplant und soll Bargeld und die Einlagen bei den Geschäftsbanken nicht ersetzen. …

Die EZB will bewusst ein Nebeneinander von Zahlungsmitteln, da sie davon ausgeht, dass der private Sektor auch künftig innovativer sein wird. Daher gilt die Gestaltung einer Frontend-Infrastruktur gehört nicht zu den Aufgaben, die eine Zentralbank übernehmen soll. Auch darf eine CBDC nicht dazu führen, dass Einlagen aus den Bilanzen der Geschäftsbanken abgezogen werden. Im Prinzip soll die Zusammenarbeit mit den Geschäftsbanken beim digitalen Euro ähnlich wie beim Bargeld ablaufen. Die Bereitstellung erfolgt durch die Zentralbanken und die Verteilung übernehmen die beaufsichtigten Dienstleister.” 9/4/2021 Der Spiegel Interview mit Isabel Schnabel , Mitglied des Direktoriums der EZB, geführt von Tim Bartz und Stefan Kaiser

SPIEGEL: Fakt ist, dass viele Leute dem Bitcoin offenbar vertrauen. Können etablierte Währungen wie der Euro darunter leiden?

SCHNABEL: Ich sorge mich eher darum, dass das Vertrauen in Kryptowährungen schnell wieder verloren geht und damit Verwerfungen an den Finanzmärkten entstehen. Das ist ein sehr fragiles System.

SP: Die EZB plant selbst die Einführung eines digitalen Euro. Warum?

SCH: Zahlungssysteme sind heute viel digitaler als früher. Daher müssen wir prüfen, was das für unser Geldsystem bedeuten. Es ist aber noch nichts entschieden. Es sind viele Vorarbeiten erforderlich, damit das Projekt richtig aufgesetzt werden kann.

SP: Das hieße, dass der digitale Euro erst in vier oder fünf Jahren kommt – ist das nicht zu spät?

SCH: Das glaube ich nicht. Niemand kann ähnlich viel Sicherheit und Datenschutz bieten wie die EZB. Das ist für die Menschen ein wichtiges Thema: Wem wollen wir als Verbraucher unsere Daten preisgeben? Da vertrauen die Menschen wohl eher der EZB als Facebook und anderen privaten Anbietern.   3/5/2021 Geld:Angst vor dem digitalen Euro?    Markus Zydra

“Die Einführung des neuen Bargelds durch die EZB rückt näher. Ob die Bürger dazu Vertrauen fassen, hängt davon ab, wie sehr die Privatsphäre geschützt bleibt.  ….  In unserem Finanzsystem gibt es nämlich zwei Arten von Geld – für das eine stehen die Geschäftsbanken gerade, für das andere die Zentralbanken: Geschäftsbanken, Sparkassen und Volksbanken schaffen Geld aus dem Nichts, beispielsweise durch die Vergabe eines Kredits, der auf dem Konto des Kunden gutgeschrieben wird. Das Entscheidende ist: Geschäftsbanken können pleitegehen, Zentralbanken nicht. … Zentralbankgeld … ist sicherer als das sogenannte Giralgeld der Geschäftsbanken. Erst wenn Menschen ihr Geld in bar am Bankomaten abheben, verwandeln sie dieses unsichere Bankengeld in sicheres Zentralbankgeld. Die Kernfrage lautet daher: Wird das digitale Bargeld genauso sicher, anonym und vertrauenswürdig ausschauen wie der gute alte Geldschein? Die Konsistenz des neuen Bargelds, die digitale Komponente, nährt den einen oder anderen Zweifel. ….” 7/5/2021 Der Wettlauf um digitales Zentralbankgeld von DR. HANSJÖRG LEICHSENRING

… “Die Verteidigung nationaler Währungen gegen private Initiativen wie Facebooks Diem (Libra) ist ein Grund für die Zentralbanken, eigene digitale Währungen zu entwickeln. Die Motivation geht jedoch über die Souveränität hinaus. CBDCs könnten Banken dabei unterstützen, auf den Rückgang des Bargeldverbrauchs von Verbrauchern zu reagieren und die Nachfrage nach digitalen Zahlungsdiensten zu befriedigen, die sich während der Pandemie beschleunigt hat und weiter wächst. CBDCs könnten auch eine Plattform für Marktinnovationen bieten.”… 26/5/2021 EZB-Konzept fast fertig: So könnte der digitale Euro aussehen – Im Sommer will die EZB ihr neues Geldprojekt starten. Einige Eckpunkte des Konzepts zeichnen sich bereits ab. Jan Mallien, Frank Wiebe 27/5/2021 EZB über Eckpunkte des E-Euro offenbar einig
Die Pläne für einen digitalen Euro nehmen Gestalt an. Der Name für die staatlich kontrollierte Digitalwährung steht angeblich schon fest. Nutzer sollen zudem keine Zinsen auf den E-Euro bekommen.

Den Zeitungsinformationen zufolge sollen Nutzer des Digital Euro für ihn keine Zinsen bekommen, auch sollen keine Minuszinsen anfallen. Für die Digitalwährung solle es konventionelle Konten unter Kontrolle der EZB geben. Vorgesehen sei auch, dass jeder Bürger nur eine Höchstsumme des Digital Euro in einer elektronischen Geldbörse (Wallet) speichern kann, um nicht zu stark in Konkurrenz mit herkömmlichen Geschäftsbanken zu stehen. Zur Diskussion stehe eine Summe von 3000 Euro. Die Wallets sollen von Banken oder anderen Finanzdienstleistern in Verbindung mit einem konventionellen Konto angeboten werden. 1/6/2021 Wie hält es die EZB mit der Macht? Die EZB will den Digital-Euro einführen. Abzuwarten bleibt, ob es eine Chance ist, die Rolle des Euro zu stärken – oder der Versuch, Bargeld und damit Freiheit zurückzudrängen. Ein Gastbeitrag von Frank Schäffler 10/6/2021 Der digitale Euro: Innovation oder Stabilitätsrisiko?  Burkhard Balz

…”Der digitale Euro ist ein komplexes Thema und wir sind weit davon entfernt, für alle Fragen bereits belastbare Antworten zu haben. Auch deshalb suchen wir den Austausch, gerade mit Fachleuten wie Ihnen. Ich habe aufmerksam die Stellungnahme des BVR zum digitalen Euro in den Positionen zur Bundestagswahl 2021 gelesen. Darin heißt es zum digitalen Euro: „Er könnte die Digitalisierung der europäischen Wirtschaft fördern und die strategische Stellung der Europäischen Union im globalen Kontext stärken.“ Das sind in der Tat Chancen, die uns der digitale Euro bietet, die ich genauso sehe. “Wer nichts wagt – der darf nichts hoffen“ – sagte Friedrich Schiller einmal. Allerdings müssen wir die möglichen Risiken zunächst besser verstehen, um sie am Ende auch beherrschen zu können. Bislang ist nichts entschieden. Das Projekt digitaler Euro ist eines der wichtigsten und spannendsten im Eurosystem. Lassen Sie uns gemeinsam dafür arbeiten, dass sich das Wagnis am Ende auch auszahlt.”  13/6/2021  China hat neue staatliche Digitalwährung – mit deutlichen Vorteilen für die Regierung  von Fabian Kretschmer Eine neue staatliche Digital-Währung wird China nachhaltig verändern – die Bevölkerung kann künftig mit dem „e-Yuan“ noch umfassender überwacht werden. Um die neue Währung attraktiv zu machen, hat Chinas Regierung nun die Spendierhosen angezogen: Per virtueller Lotterie werden derzeit 40 Millionen Renminbi (umgerechnet rund fünf Millionen Euro) an die Bürgerinnen und Bürger verteilt. Ausgezahlt werden sie in Form des neuen „e-Yuan“, der weltweit ersten staatlichen Digitalwährung. 23/6/2021 BIZ legt gegen Kryptowährungen nach: Kritik an „Stable Coins“ – Die Chef-Zentralbanker sehen kaum Vorteile in privatem Cyberdevisen. Besser weg kommen staatliche Ansätze für digitales Geld. Felix Holtermann

See also on GaiaMoney

english articles – CBDC, monetary/fiscal, savings+loans

scholar.harvard  2008    Voodoo Multiplyers    by Robert J. Barro

…”Never mind that Summers is now talking a very different line than the one he dispensed when he still worked at the White House. (In another Financial Times piece last July, he offered up deficit reduction as a curative therapy, a dose of discipline that would instill “increased confidence and reduced capital costs that encourage investment, even before the deficit is reduced.”) The point is that Summers has joined the crisis camp, adding his booming voice to those intoning that we must get serious about investing in economic growth.”… 2012 The Theory and Empirical Credibility of Commodity Money by John Weeks

ABSTRACT : The recent instability in financial markets demonstrated the inadequacy of the mainstream treatment of money and the underlying production base. This has stimulated interest in the possible role of a money commodity. The fundamental function of monetary theory, an explanation of the general level of prices, is provided through only two analytical mechanisms, quantity-based valueless money or a money commodity. The quantity-based explanation is unsound by its own logic. The theoretical argument for commodity-based money, on the other hand, is analytically consistent. This theoretical superiority has little practical impact because the commodity money hypothesis is considered empirically absurd. However, a link between gold and aggregate prices in the United States since the end of World War II can be demonstrated, and this link has prima facie credibility. This credibility might motivate Marxists and other critics of mainstream economics to give serious consideration to commodity-based monetary theory. 2012 Paul Krugman, Steve Keen and the mysticism of Keynesian economics

As promised, let me return to the debate within Keynesianism between Paul Krugman, Nobel prize winner and guru of orthodox Keynesianism and Steve Keen, the upstart radical ‘Minsky-Keynesian’, over what are the key processes of modern capitalism and the cause of the Great Recession.

Steve Keen has recently revised and expanded his excellent book, Debunking Economics and his attacks on mainstream economics, the nature of capitalist crisis and what to do about it provoked the great columnist of the New York Times and scourge of the Republicans, Paul Krugman, to respond.  Krugman wasted no time in dismissing Keen’s ideas in his daily blog as”mysticism”.  Keen responded sharply and then a long debate ensued with loads of other economists with their blogs entering the fray. You can follow the twists and turns in the debate here 2013 The power to ‘create money out of thin air’ – Understanding capitalism’s elastic production of money and moving on beyond Adam Smith and ‘fractional reserve banking’ – Ann Pettifor reviews Geoffrey Ingham’s Capitalism

…”First while acknowledging that capitalism’s hallmark is the “elastic production of money” (G Ingham) then retracts, and suggests that private credit-creation is constrained by the practice of ‘fractional reserve banking’ – a form of commercial banking probably not practised since the founding of the Bank of England in 1694.  Again this is the subject of heated debate within the economics sphere, so more on the subject below.

Second Ingham, like many economists, blames the inflation of the 1970s on the ‘the power of monopoly capital and their labour forces to mark up their respective prices’. (p.86)  This analysis appears to discount the role played by the City of London in creating excessive credit – ‘too much money chasing too few goods and services’ – after Chancellor Anthony Barber’s assault on banking regulation in 1971.” … 2014 Loanable Funds vs. Endogenous Money: Krugman is Wrong, Keen is Right by Egmont Kakarot-Handtke

Abstract – In his recent article, Keen resumes the debate with Krugman about the effects of debt upon the economy. It is hard to see how the question can be settled as long as all participants apply their idiosyncratic models. Hence the issue boils down, as Krugman rightly put it, to the deeper question: “how should one do economics.” Sketched with a broad brush, the consensus is that Orthodoxy has failed and that Heterodoxy has no convincing alternative to offer. The conceptual consequence of the present paper is to restart from a firm common formal ground. This relocation makes the debate solvable.

Keywords: new framework of concepts, structure-centric, axiom set, consumption economy, debt, Profit Law, simulation, market clearing, budget balancing 2014 Money creation in the modern economy By Michael McLeay, Amar Radia and Ryland Thomas

This article explains how the majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.  2014  Bank of England Lights A Fuse Under the Field of Economics By Raul I Meijer

“There will be many people who don’t care, there will be many more who don’t understand, and there will be boatloads who refuse to believe it’s true, but it still is. The Bank of England, in one single document, discredited, just at first count, 1) the majority of economics textbooks, 2) vast swaths of the entire field of economics, run as it is by economists educated by those same textbooks, 3) most governments’ economic policies, designed by these economists, 4) much of its own work, also designed by the same economists, 5) Paul Krugman and 6) the “committee” that hands Krugman and his ilk their Not-So-Nobel Prizes.” 2016 Legitimising and Delegitimising the Monetary System – Competing Portrayals of Fractional Reserve Banking in Knowledge Discourse by Ylva Lundkvist Fridh

This is a study of how knowledge producing actors, like professors of economics, ecological economics and investigators at public institutions, portray the monetary system in general and fractional reserve banking specifically. The methodology of Political Discourse Analysis, with focus on argumentation and legitimisation, is used to identify and compare how different actors portray the monetary system. The outcome shows that there exist competing knowledge discourses that are diametrically different in how they define keywords and describe the relation between the monetary system, societal power relations and environmental impact. Some important concepts under academic debate include the origin of money, which actor (the state or commercial banks) controls the money supply and seigniorage (money issuer’s revenue), if private banks really are intermediaries and multiply central bank money, and if interest-bearing money is a cause of socioecological unsustainability. By critically analysing the moral norms knowledge discourses that otherwise might be naturalised as portraying ‘facts’ or ‘truth’, this thesis helps identify needs for further research – especially regarding how the financial system can be better adapted for socioecological sustainability.

Keywords: Fractional Reserve Banking, financial system, monetary system, monetary policy, banking policy, political legitimacy, strategic legitimisation, power relations, environmental impact, socioecological sustainability, knowledge discourse, hegemony. 2016 Cashing in on blockchain technology – The emergence of blockchain has breathed new life into the ideas of economists Adam Smith, David Ricardo and Milton Freidman, and could potentially trigger a revolution in central banking by Kim Darrah, David Clarke 

Not only is currency a different type of asset, it enters the economy in a different way. While central banks have control over the creation of physical currency, the amount of commercial bank money in the economy is determined by decisions made by the commercial banks. Banks inject fresh money into the economy each time they extend a new line of credit, and thus the quantity of commercial bank money in the economy depends on the willingness of banks to lend. Central banks, however, can only influence money supply indirectly, through monetary policy and regulation.

Individuals have been excluded from… hold[ing] such a digital currency, but this could change thanks to blockchain technology… The digital currency revolution could… eliminate commercial bank money altogether; leaving only paper cash and digital currency issued by the central bank …

A paper by the International Monetary Fund published in 2012, named The Chicago Plan Revisited, lent further support to the concept, claiming: “The Chicago Plan would indeed represent a highly desirable policy.” The paper further explains how an economy would look under such a plan: “Credit, especially socially useful credit that supports real physical investment activity, would continue to exist. What would cease to exist however is the proliferation of credit created, at the almost exclusive initiative of private institutions, for the sole purpose of creating an adequate money supply that can easily be created debt-free.”

Positive money argues such a scenario – in which central banks have control over money supply – could have far-reaching benefits, and be achieved through the means of a central bank digital currency. That said, Clarke explained they do not advocate implementing digital cash all at once: “We think the starting point is for the Bank of England to introduce a certain amount of digital cash. It could offset this over time by reducing the amount of bank-created money by raising reserve ratios. Under the system we propose, decisions about how much money is created – and when it is created – will be a matter for the monetary policy committee.”…   2016  Economists Ignore One of Capitalism’s Biggest Problems. Banks Create Money out of Nothing. Banks don’t intermediate loans, they originate loans      by  Steve Keen

I like Joe Stiglitz, both professionally and personally. His Globalization and its Discontents was virtually the only work by a Nobel Laureate economist that I cited favourably in my Debunking Economics, because he had the courage to challenge the professional orthodoxy on the “Washington Consensus”. Far more than most in the economics mainstream—like Ken Rogoff for example—Joe is capable of thinking outside its box. But Joe’s latest public contribution—“The Great Malaise Continues” on Project Syndicate—simply echoes the mainstream on a crucial point that explains why the US economy is at stall speed, which the mainstream simply doesn’t get. 2017 Excess saving and low interest rates: Assessing theory and evidence from the Global Crisis Peter Bofinger, Mathias Ries

There is a broad consensus that the global decline in real interest rates can be explained with a higher propensity to save, above all due to demographic reasons. This column argues that this view relies on a commodity theory of finance, which is inadequate for analysis of real world phenomena. In a monetary theory of finance, household saving does not release funds for investment, it simply redistributes existing funds. In addition, the column shows that at the global level, the gross household saving rate has declined since the 1980s, as well as net saving rates. 2017 A Model of the Market for Bank Credit: The Case of Germany Peter Bofinger, Daniel Maas, Mathias Ries 2017 The results of a new poll of MPs reveal a worrying lack of understanding of the UK’s money and banking system across the House of Commons. The poll finds that only 15% of MPs are aware of how most money is created in the modern economy.

Exratordinarily Difficuly Questions  2017  Our democracy is broken: here’s a utopian idea for fixing it   Zoe Williams
Pessimism reigns, but the introduction of citizens’ juries could help us to reconnect with politicians and fall back in love with politics

…”At the moment, give or take a bit of quantitative easing, all money is conjured into existence by private banks, 85% of it as loans on existing residential property. It’s a recipe for unaffordable housing and unmanageable private debt, but it’s also undemocratic: the creation of money, which is essentially the creation of debt, affects all of us. There is no reason to surrender it to private banks, whose interests tend not to be the public good and whose accountability is pretty patchy.

Opinion is divided as to the solution: the economist Ann Pettifor favours tighter regulation of banks. This could involve a social benefit duty, forcing banks to prove that any debt created contributes to a better future for us all – lending to new businesses; lending for skills; lending for new houses ahead of existing ones and such like. Fran Boait, head of Positive Money, favours sovereign money, created by the government after public deliberation. The sine qua non is that the citizen is invited into the process, and understands enough to make the invitation relevant. A survey, now two years old, found that only one in 10 MPs understood how money was created; currently, we can’t even be bothered to educate our own legislature.” … PDF 9/2017 Central bank cryptocurrencies by Morten L Bech and Rodney Garratt

New cryptocurrencies are emerging almost daily, and many interested parties are wondering whether central banks should issue their own versions. But what might central bank cryptocurrencies (CBCCs) look like and would they be useful? This feature provides a taxonomy of money that identifies two types of CBCC – retail and wholesale – and differentiates them from other forms of central bank money such as cash and reserves. It discusses the different characteristics of CBCCs and compares them with existing payment options. …

Further reading Central bank digital currenciesProceeding with caution – a survey on central bank digital currencyMoney in the digital age: what role for central banks?

cointelegraph 6/2018 National Government Digital Currencies Versus Globally Distributed Cryptocurrencies: in Depth Rainer Michael

‘Everyone can create money, the problem is to get it accepted’ (Hyman Minsky, an American economist)

pic  2019 Banks do not create money out of thin air Pontus Rendahl, Lukas B. Freund

…”This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits)” …  2020 Private Credit Money Accommodation  Steffen Murau

Private credit money accommodation is a theory on the long-run transformation of the modern credit money system. During financial upswings, new forms of private credit money emerge as “shadow money”. At the end of the boom, they implode in a systemic financial crisis. When the state steps in and guarantees them, they are “accommodated” into the public money supply. Public money today is accommodated private credit money of the past.

The theory of private credit money accommodation carves out a major driving force that explains the way in which the modern credit money system has changed its shape throughout the previous centuries. What we know as public money today is not so much “fiat money”, a token that has been turned into money ex nihilo through state power and a legal act. Rather, contemporary state money consists of debt instruments that historically emerged through private innovation, for a while existed as private “shadow money” next to established forms of commodity money or public credit money, and only later were accommodated during a financial crisis. 2/ 2020 Digital money and central bank digital currency: An executive summary for policymakers
by Dirk Niepelt

Central banks already issue digital money, but only to a select group of financial institutions. Central bank digital currency would extend this to households and firms. This column examines the proposal for such currency and assesses the opportunities and risks. It argues that while preparations for the launch of Libra have not proceeded according to plan, it has become clear that for central banks, maintaining the status quo is not an option. 2/2020 Digital Currencies, Blockchain and the Future of Money Peter Xing 3/2020 Carney sees big challenges as BoE eyes ‘digital banknotes’ By David Milliken

The Bank of England must tread carefully to avoid financial stability dangers if it creates a digital equivalent to its existing banknotes, Governor Mark Carney said on Thursday.“While CBDC (central bank digital currency) poses a number of opportunities, it could raise significant challenges for maintaining monetary and financial stability … and would need to be very carefully designed if it were to be introduced,” Carney said in the foreword to a BoE discussion paper.

The BoE’s move was welcomed by think-tank Positive Money, which is critical of commercial banks’ lending policies. “The government and central bank must continue to work together to accelerate efforts to issue a digital currency before they are beaten to it by the likes of Facebook,” Positive Money’s head of policy David Clarke said.

“If significant deposit balances are moved from commercial banks into CBDC, it could have implications for the balance sheets of commercial banks and … the amount of credit provided by banks to the wider economy,” the BoE said.

“Nonetheless, CDBC can be designed in a way that would help mitigate these risks,” it added. 3/2020 Two Sides To Central Bank Digital Currency (CBDC) by Vincent Tabora

…”It is good to have an objective way at looking at this without confirmation bias. We can look at CBDC from two sides. The current financial systems will need to find solutions to problems that involve friction in the the transfer of value, inclusion of the unbanked, faster settlements and more direct means of transactions that reduce fees. While it may affect the principles of sovereign money which puts the control of funds in the hands of citizens, it also provides a better way of accountability and efficiency. There has to be a right balance of what citizens can do that doesn’t take too much away from their rights.”…  GMcopy 4/2020  Out of Thin Air: Public Debt, the Pandemic and Beyond Zann Maxwell

Governments around the world are currently creating vast quantities of money ‘out of thin air’ to fund their emergency responses to the coronavirus pandemic.  As this happens, we can safely disregard scaremongering about a  ‘crippling burden of debt’   supposedly being left to our children.  The truth is, this money never has to be paid back in any meaningful sense and can cost us basically nothing. Crucially, this could also be the case for money created to fund other things we might choose to prioritise in the future, such as de-carbonising our economy.

Significantly, the Bank of England and the US Federal Reserve have already taken the next step by creating money out of thin air to purchase government bonds directly from their governments, on the ‘primary market’. This practice is known as ‘monetary financing’.  The Governor of the Reserve Bank, Dr Philip Lowe, has emphasised that Australia’s approach is, for now, strictly QE and not monetary financing. But whether it’s QE or monetary financing, the outcome is the same, with one part of the government (the central bank) creating new money and effectively loaning it to another part of the government. The ABC’s Alan Kohler asks the inevitable question:  “The Reserve Bank might be independent but it is part of the government. What happens when that debt has to be repaid – to the Reserve Bank? Well, no one knows […]”  The renowned economic historian Robert Skidelsky is less coy, explaining exactly what happens:  …

… As Alan Kohler went on, “What [Reserve Bank Governor] Dr Lowe won’t be keen to do is give politicians the idea that there’s a magic tree of printed money. There sort of is… just don’t tell the politicians.”  It is true that when new money is created and spent into the economy faster than the rate of growth in productive output then price inflation occurs.  The times when the spending of publicly created money has resulted in high inflation or even hyperinflation in this way are well known, resulting in the widespread and strongly held misconception that money creation by the governme …

… While the fear that if “central bankers lose their ability to say no to treasuries, things could turn out badly” is a valid concern, it is not so valid that we need to tie ourselves up in a straitjacket of false narratives and false constraints; especially with such urgent need for investments in health, education, energy and the environment. The government’s ability to create money is a great power and there are different schools of thought about precisely how it should best be used and monitored. One comes from the UK advocacy group Positive Money, which suggests that we need an independent committee …

A system like this was once proposed by the great economist Irving Fisher in the 1930s.  Fisher argued that it would dramatically reduce business cycles, end bank runs and drastically reduce public debt. A 2012 study by International Monetary Fund staff found this plan could work well now.  The Financial Times chief economics commentator, Martin Wolf agrees …

… The groundwork is already being laid for the government debt to be used as a pretext for austerity and other ideological projects when we emerge from this public health crisis. A proper understanding of government finances will be a powerful tool to push back with.  We should also keep it firmly in mind when attention returns to the other great challenges of our times, such as fighting climate change.  If we can finance our response to one public emergency in this way, then we could finance our response to another, without debt, without interest, without inflation and without austerity.  If the public comes out of the crisis with a greater understanding of this and puts it at the centre of policy moving forward, it will be a silver lining. …” …. whole article GM copy here 8/2020 How does international capital flow? By Michael Kumhof, Phurichai Rungcharoenkitkul, Andrej Sokol

Understanding gross capital flows is increasingly viewed as crucial for both macroeconomic and financial stability policies, but theory is lagging behind many key policy debates. We fill this gap by developing a two-country DSGE model that tracks domestic and cross-border gross positions between banks and households, with explicit settlement of all transactions through banks. We formalise the conceptual distinction between cross-border saving and financing, which often move in opposite directions in response to shocks. This matters for at least four policy debates. First, current accounts are poor indicators of financial vulnerability, because in a crisis, creditors stop financing debt rather than current accounts, and because following a crisis, current accounts are not the primary channel through which balance sheets adjust. Second, we reinterpret the global saving glut hypothesis by arguing that US households do not finance current account deficits with foreigners’ physical saving, but with digital purchasing power, created by banks that are more likely to be domestic than foreign. Third, Triffin’s current account dilemma is not in fact a dilemma, because the creation of additional US dollars requires dollar credit creation by US and non-US banks rather than US current account deficits. Finally, we demonstrate that the observed high correlation of gross capital inflows and outflows is overwhelmingly an automatic consequence of double entry bookkeeping, rather than the result of two separate sets of economic decisions.  11/2020  Savings Glut or Investment Dearth: Rethinking Monetary Policy  – Stephanie Kelton’s “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy” reviewed by Andrew Smithers

In the past, as governments have “funded” deficits (rather than monetizing them), much of their debt took the form of long- and medium-dated bonds. Since the yield curve usually slopes upward, this was an expensive policy and one that must be seen as foolish if the funding brought no discernible benefit. Beginning with the introduction of “quantitative easing” in 2008, however, the United States has reversed direction by having the Federal Reserve buy long-dated government bonds. “To fund or not to fund” is thus an im­portant and immediately relevant question, one which economists not only have no agreed answer to but seem reluctant to even ask.

Unasked questions are unanswered ones, and a virtue of Stephanie Kelton’s The Deficit Myth is that it forces attention on why governments ever go to the expense of issuing bonds in the first place. Her critique of the weaknesses of conventional economic policy should receive—and to some degree already has received—wide acceptance. Things become more complicated, however, when Kelton begins to propound solutions to the various problems that her critique has revealed. Dramatic changes in economic management, such as those Kelton proposes, must be based on relative risks, and the known risks in our current system will likely (and correctly) remain preferable to unknown ones. The Deficit Myth nonetheless raises important points about why our conventional economic policy approaches need to be improved and how this might be done. >GM copy article here   11/2020  Why it is misleading to blame financial imbalances on a saving glut – New research calls for a careful distinction to be made between saving and financing flows

“In the second quarter of this year, America’s net national saving rate dipped below zero, as Stephen Roach of Yale University pointed out in the Financial Times last month. Lacking saving of its own, America instead borrowed “surplus saving from abroad”, he wrote. Its current-account deficit widened faster in the second quarter than ever before recorded.

This sort of reasoning is quite common, not least in these pages. But a number of economists, including Michael Kumhof of the Bank of England, Phurichai Rungcharoenkitkul of the Bank for International Settlements (bis) and Andrej Sokol of the European Central Bank, take strong issue with it. Echoing work by Claudio Borio and Piti Disyatat of the bis, they call for a careful distinction between flows of saving and flows of finance. The two are not the same. They need not even move together. The implication is that Mr Bernanke may have got things the wrong way around.

In everyday language, saving is the opposite of spending. The word evokes money accumulating in a bank account. And it is easy to imagine this money helping finance spending elsewhere. But in economics, saving is rather different. It is the opposite of consumption. By producing something that is not consumed, the economy is saving. Thus someone who spends all their earnings on home improvements is saving, however stretched they may seem, because a house is a durable asset, not a consumer trifle. Similarly a farmer who stores his harvest in a barn, rather than eating it, is saving—even if he never deposits money in a bank. …

In a world of gluts and deficits, who finances whom? The conventional answer is that countries with excess saving finance those with saving shortfalls. But this less conventional group of economists argues that the answer depends not on the geography of saving and investment but on that of banking and finance. …

For many people (including some economists), it is natural to think that saving must precede investment and that deposits must precede bank lending. It is therefore tempting to see saving as a source of funding and the prime mover in many macroeconomic developments. Mr Kumhof and his co-authors see things differently, giving banks a more active, autonomous role. They give less credit to saving and more to credit.” 12/2020 Saving Gluts and American Financial Imbalances – by Michael Pettis

The idea that trade imbalances are more likely to be the result of credit imbalances than of savings imbalances ignores the role of savings imbalances in creating credit imbalances. When a surplus country demands to be paid for its trade surplus with claims on American assets, the U.S. economy must adjust to create these assets—and one of the most common ways it does so is by expanding credit. … I sent out a rather long tweet in response to a very good article in the Economist called “Why It Is Misleading to Blame Financial Imbalances on a Saving Glut.” …

The Economist article illustrates just how much confusion there is over the accounting identities that describe the balance of payments. The piece starts out by reminding readers of a reference Ben Bernanke made in 2005, when he was chair of the Federal Reserve, to a “remarkable reversal in the flows of credit” to emerging economies, particularly in East Asia. These countries had begun to save more than they invested at home, morphing into a “net supplier of funds” to other parts of the world. He called this a “saving glut.” …

It is true, as the Economist points out, that the flow of financial savings is not the same as the flow of savings that occurs through the current account, but the concept of a saving glut nonetheless remains a very useful concept in understanding trade imbalances. As Matthew Klein and I discuss in the book Trade Wars Are Class Wars, ever since the late twentieth century, the main sources of trade imbalances in the advanced economies have been savings imbalances caused by distortions in the distribution of income in surplus countries. But while these savings imbalances are exported through the current account, the impact they have on global imbalances can best be understood by the capital account, namely the way in which current account surpluses are paid for by the acquisition of claims on foreign assets.” 12/2020 CBDC: Can Central Banks Succeed in the Marketplace for Digital Monies? by Peter Bofinger , Thomas Haas

Abstract : The discussion about central bank digital currencies (CBDC) has gained an impressive momentum. So far, however, the main focus has been on the macroeconomic implications of CBDCs and the narrow perspective of developing a digital substitute for cash. This paper adds a microeconomic dimension of CBDC to the discussion. We provide an overview of the existing payment ecosystem and derive a systemic taxonomy of CBDCs that distinguishes between new payment objects and new payment systems. Using our systemic taxonomy, we are able to categorize different CBDC proposals. In order to discuss and evaluate the different CBDC design options, we develop two criteria: allocative efficiency, i.e. whether a market failure can be diagnosed that justifies a government intervention, and attractiveness for users, i.e. whether CBDC proposals constitute attractive alternatives for users compared to existing payment objects and payment systems. Our analysis shows that there is no justification for digital cash substitutes from the point of view of allocative efficiency and the user perspective. Instead, our analysis opens the perspective for a retail payment system organized or orchestrated by the central bank without a new, independent payment object. 25/2/2021 Central Bank Digital Currency (CBDC) – Digital Money For Our Central Banks – What is it and why should I care as a business owner and consumer? By Dr. Patrick Schueffel

“The Chinese central bank has already launched it on the market as a test, the ECB is working on it, and it is also a high priority for the U.S. Federal Reserve: the issuance of digital central bank money, or CBDC, as it is called in new German. But the term is misleading because by far the largest share of global central bank money is already digital. So what is it about this new money that is being worked on at full speed? What is CDBC that is such a high priority for Democrats…?

… From a purely technical point of view, it has never been easier for a state to balance its budget by means of compulsory bonds than in the times of CDBC. The state could simply issue compulsory bonds by temporarily blocking companies or citizens from using part of their cash balances in the wallet. A debt cut or a currency reform would also be very simple: the user would simply be deprived of part of his balance or the current currency in his wallet would be compulsorily exchanged for a new one, naturally at an exchange rate defined by the government.”… 4/2021 “Excess Savings” Are Not Excessive by Florin Bilbiie, Gauti Eggertsson, Giorgio Primiceri, Andrea Tambalotti

…”Excess savings are mostly held by…savers. One reason why many economists do not associate the exceptional increase in government debt over the past year with an imminent explosion in aggregate demand … is the idea that government debt is money that citizens owe to themselves. As such, it would not represent “net wealth” that is ready to be spent. In economics jargon, this idea is known as Ricardian Equivalence. According to this proposition, public transfers financed with government debt do not affect consumption because households save them to pay for the increase in taxes that will eventually be necessary to repay that debt. If Ricardian Equivalence held, the marginal propensity to consume out of debt-financed transfers would be zero, and the resulting savings would never be spent.

Ricardian Equivalence is the kind of theoretical benchmark that economists love, but it clearly does not hold in practice. In fact, many U.S. families did spend a significant share of the checks and other income support that they received during the pandemic. According to available estimates, this share is around one-third on average. The rest was used to pay down debt (also about one-third) or otherwise saved. It is hard to know exactly who holds these savings, but it seems reasonable to assume that they are individuals and families with a bit of a buffer in their budgets—and whose consumption decisions are therefore less sensitive to their immediate economic circumstances. This is presumably what allowed them to save part of the support they received. According to economic theory, these savers are more likely to be Ricardian, and hence to continue holding on to these savings. Of course, their economic circumstances might change in the future and they might find themselves in need to spend those accumulated resources, but the end of the pandemic in itself is unlikely to turn them from savers to immediate spenders. If anything, fewer households should face financial hardship as aggregate conditions improve.”… 28/5/2021 Sweden’s Central Bank to Test Digital Currency With Handelsbanken – The Riksbank will partner with Handelsbanken to test how the e-krona might work in the real world. by Jamie Crawley

The Riksbank plans to test its proposed central bank digital currency (CBDC) with commercial bank Handelsbanken as it moves on from having only simulated participants. The e-krona is set to move from the simulation phase to a testing environment with external participants, Reuters reported Friday. Handelsbanken, the country’s largest bank by assets as of 2019, will work with the central bank to test how the CBDC could handle payments in the real world. The Riksbank announced in April that it would involve commercial banks in the next phase of the project, which could reach fruition within five years, according to Governor Stefan Ingves. “The project means the opportunity to participate in what may be among the first digital central bank-issued money in the world to be available to the public,” Handelsbanken said in a statement. Sweden appears to be second only to China among major economies in the advancement of its CBDC plans, Reuters said. While multiple other countries are in active discussion and research, Sweden and China are the only ones to have begun testing, with the latter’s currently being rolled out to consumers on a pilot basis.

read more: China’s CBDC Could Give Beijing ‘Leeway for Economic Retaliation,’ Says National Security Expert   11/6/2021  A NEW DIGITAL CURRENCY THAT CAN BE THE POTENTIAL CRYPTOCURRENCY KILLER      by Apoorva Komarraju 

the  14/6/2021  The UK economy could be transformed by a central bank digital currency
Josh Ryan-Collins

The Bank of England’s consultation on public digital cash could represent the biggest shift in the monetary system for 200 years –  Last week, the Bank of England launched a consultation on a UK central bank digital currency (CBDC) and the regulation of private digital currencies, joining dozens of other central banks around the world who are investigating “digital cash” and some, like the Chinese, who are already trialling it.

Modern digital money that we use for everyday transactions on our credit cards and for online transactions has become increasingly important to the functioning of the economy, accounting for 97% of the circulating money supply. But unlike physical cash and coins, digital money is not created by the central bank or government but by commercial banks. When a bank makes a loan, it creates new, sterling-denominated electronic deposits in your bank account: money. The total “money supply” in the economy is determined by the rate of new loans issued to households and firms and the rate of repayment by those borrowers. …

With the abolition of the gold standard, bank money is no longer backed by anything physical. However, the central bank still has some influence over the money supply since commercial banks must settle payments using “reserves” that they hold in separate deposit accounts held at the central bank. Central banks try to affect the economy through changing the interest rate they charge on lending these reserves.

CBDC would allow households and firms, not just banks, to hold digital money directly at accounts with the central bank. The primary motivation of the Bank of England to examine CBDC appears to be the threat of non-bank digital currencies issued by unregulated entities outside central banks’ purview – the best known are the “crypto-assets” such as bitcoin.

But central banks are more worried about currencies issued by large corporations with billions of users and international reach such as the Diem currency, which is partly backed by Facebook, or redeemable platform tokens that large retail tech companies such as Amazon could issue, backed by the ability to spend on goods the platform sells. …” … 21/6/2021 Bank of England tells ministers to intervene on digital currency ‘programming’ – Digital cash could be programmed to ensure it is only spent on essentials, or goods which an employer or Government deems to be sensible By Tim Wallace 24/6/2021 BIS backs CBDCs to win out against bitcoin, stablecoins and Big Tech – The Bank for International Settlements has firmly thrown its weight behind the development of central bank digital currencies (CBDC), billing the monetary shift as a public good against the twin evils of Big Tech and bitcoin.

Central bank interest in CBDCs comes at a critical time. Several recent developments have placed a number of potential innovations involving digital currencies high on the agenda. The first of these is the growing attention received by bitcoin and other cryptocurrencies; the second is the debate on stablecoins; and the third is the entry of large technology firms into payment services and financial services more generally. 26/6/2021 Swiss National Bank Has No Plans for a Digital Currency: Report – The Swiss National Bank tested the feasibility of CBDCs in 2020. Cheyenne Ligon

The Swiss National Bank (SNB) is not planning to introduce a central bank digital currency (CBDC), according to a report in the Swiss weekly business publication Handelszeitung. read or download pdf 2021 BIS report: CBDCs: an opportunity for the monetary system

  • Central bank digital currencies (CBDCs) offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy.
  • Digital money should be designed with the public interest in mind. Like the latest generation of instant retail payment systems, retail CBDCs could ensure open payment platforms and a competitive level playing field that is conducive to innovation.
  • The ultimate benefits of adopting a new payment technology will depend on the competitive structure of the underlying payment system and data governance arrangements. The same technology that can encourage a virtuous circle of greater access, lower costs and better services might equally induce a vicious circle of data silos, market power and anti-competitive practices. CBDCs and open platforms are the most conducive to a virtuous circle.
  • CBDCs built on digital identification could improve cross-border payments, and limit the risks of currency substitution. Multi-CBDC arrangements could surmount the hurdles of sharing digital IDs across borders, but will require international cooperation. 26/6/2021 The geopolitical relevance of central bank digital currencies – by Brunello Rosa, Alessandro Tentori

Digital currencies are becoming increasingly present on both research and policy agendas, including for central banks. This column explores the geopolitical role of central bank digital currencies, with a particular focus on China. It argues that such currencies could be useful as a means for central banks to record transactions in an increasingly cashless economy and could help improve central banks’ monetary transmission. Nonetheless, the risk of cyber-attacks should not be overlooked. 28/6/2021 The central bank race for digital currencies is hotting up – As governments crackdown on bitcoin and other cryptocurrencies, central banks are developing their own digital currencies. That has all sorts of implications – not all of them good. by John Stepek

The BoE said that if it introduced its own digital currency, it would be denominated in sterling and would not replace banknotes or commercial bank deposits, and need not be based on the blockchain technology that underpins cryptocurrencies. But, like cash, it would offer an alternative to using banks for payments between individuals and businesses and could make cross-border payments easier. … 28/06/2021 Carney warns CBDC delays play into hands of big tech

“Mark Carney called on central banks today (June 28) to embrace digital forms of public money, or risk allowing tech firms to dominate a “new world” of money. The former Bank of England governor said the world was heading for a new monetary system, potentially with a greater role for distributed forms of finance. But he cautioned that past episodes in which multiple forms of private money fought for supremacy led to inefficiency and instability. The new monetary system, Carney said, …”… 28/6/2021 Monetary-fiscal interactions on the way out of the crisis by Fabio Panetta, … at the Conference of the Governors of Mediterranean Central Banks on “Central banks at the frontline of the COVID-19 crisis: weathering the storm, spurring the recovery”

“The pandemic has seen a paradigm shift. For the first time in decades, monetary and fiscal policies across advanced economies are working together to stimulate demand. And following many years of low growth and low inflation, both are now picking up. …”… 29/6/2021 China digital currency: e-yuan launch would be ‘hard to ignore’, ex-top Japanese financial regulator says – China began exploring the concept of a sovereign digital currency in 2014 following the success of e-commerce platforms Alibaba, Tencent and Baidu – China has already distributed some 200 million yuan (US$31 million) in digital currency as part of pilot projects across the country 5/7/2021 Cryptocurrencies’ dream of escaping the global financial system is crumbling – As digital currencies break through to the mainstream, it’s becoming clear that their future is far from stateless

more CBDC articles

The Economist special report – leader article

“Technological change is upending finance. Bitcoin has gone from being an obsession of anarchists to a $1trn asset class that many fund managers insist belongs in any balanced portfolio. Swarms of digital day-traders have become a force on Wall Street. PayPal has 392m users, a sign that America is catching up with China’s digital-payments giants. Yet, as our special report explains, the least noticed disruption on the frontier between technology and finance may end up as the most revolutionary: the creation of government digital currencies, which typically aim to let people deposit funds directly with a central bank, bypassing conventional lenders.

These “govcoins” are a new incarnation of money. They promise to make finance work better but also to shift power from individuals to the state, alter geopolitics and change how capital is allocated. They are to be treated with optimism, and humility.

A decade or so ago, amid the wreckage of Lehman Brothers, Paul Volcker, a former head of the Federal Reserve, grumbled that banking’s last useful innovation was the ATM. Since the crisis, the industry has raised its game. Banks have modernised their creaking IT systems. Entrepreneurs have built an experimental world of “decentralised finance”, of which bitcoin is the most famous part and which contains a riot of tokens, databases and conduits that interact to varying degrees with traditional finance. Meanwhile, financial “platform” firms now have over 3bn customers who use e-wallets and payments apps. Alongside PayPal are other specialists such as Ant Group, Grab and Mercado Pago, established firms such as Visa, and Silicon Valley wannabes such as Facebook.

Government or central-bank digital currencies are the next step but they come with a twist, because they would centralise power in the state rather than spread it through networks or give it to private monopolies. The idea behind them is simple. Instead of holding an account with a retail bank, you would do so direct with a central bank through an interface resembling apps such as Alipay or Venmo. Rather than writing cheques or paying online with a card, you could use the central bank’s cheap plumbing. And your money would be guaranteed by the full faith of the state, not a fallible bank. Want to buy a pizza or help a broke sibling? No need to deal with Citigroup’s call centre or pay Mastercard’s fees: the Bank of England and the Fed are at your service.

One motivation for governments and central banks is a fear of losing control. Today central banks harness the banking system to amplify monetary policy. If payments, deposits and loans migrate from banks into privately run digital realms, central banks will struggle to manage the economic cycle and inject funds into the system during a crisis. Unsupervised private networks could become a Wild West of fraud and privacy abuses.

The other motivation is the promise of a better financial system. Ideally money provides a reliable store of value, a stable unit of account and an efficient means of payment. Today’s money gets mixed marks. Uninsured depositors can suffer if banks fail, bitcoin is not widely accepted and credit cards are expensive. Government e-currencies would score highly, since they are state-guaranteed and use a cheap, central payments hub. As a result, govcoins could cut the operating expenses of the global financial industry, which amount to over $350 a year for every person on Earth. …

It is this appeal, though, that creates dangers. Unconstrained, govcoins could fast become a dominant force in finance, particularly if network effects made it hard for people to opt out. They could destabilise banks, because if most people and firms stashed their cash at the central banks, lenders would have to find other sources of funding with which to back their loans.

If retail banks were sucked dry of funding, someone else would have to do the lending that fuels business creation. This raises the queasy prospect of bureaucrats influencing credit allocation. In a crisis, a digital stampede of savers to the central bank could cause bank runs.

Once ascendant, govcoins could become panopticons for the state to control citizens: think of instant e-fines for bad behaviour. They could alter geopolitics, too, by providing a conduit for cross-border payments and alternatives to the dollar, the world’s reserve currency and a linchpin of American influence. The greenback’s reign is based partly on America’s open capital markets and property rights, which China cannot rival. But it also relies on old payments systems, invoicing conventions and inertia—making it ripe for disruption. Small countries fear that, instead of using local money, people might switch to foreign e-currencies, causing chaos at home.

New money, new problems

Such a vast spectrum of opportunities and dangers is daunting. It is revealing that China’s autocrats, who value control above all else, are limiting the size of the e-yuan and clamping down on private platforms such as Ant. Open societies should also proceed cautiously by, say, capping digital-currency accounts.

Governments and financial firms need to prepare for a long-term shift in how money works, as momentous as the leap to metallic coins or payment cards. That means beefing up privacy laws, reforming how central banks are run and preparing retail banks for a more peripheral role. State digital currencies are the next great experiment in finance, and they promise to be a lot more consequential than the humble ATM.”


The Economist special report  letters to the editor

The Economist special report sources and acknowledgments

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