Monetary Policy Implications of Electronic Money

First Monday ◽  
1997 ◽  
Author(s):  
Aleksander Berentsen
Keyword(s):  
Central Bank ◽  
Banking System ◽  
Central Banks ◽  
Policy Implications ◽  
Electronic Payment ◽  
Electronic Money ◽  
Regulatory Policies ◽  
Digital Money ◽  
Payment Mechanisms ◽  
Retail Payments

The term digital money refers to various proposed electronic payment mechanisms designed for use by consumers to make retail payments. Digital money products have the potential to replace central bank currency, thereby affecting the money supply. This paper studies the effect of replacing central bank currency on the narrowly defined stock of money under various assumptions regarding regulatory policies and monetary operations of central banks and the reaction of the banking system.

Digital Money, Liquidity, and Monetary Policy (originally published in July 1997)

First Monday ◽  
2005 ◽  
Author(s):  
Aleksander Berentsen
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Banking System ◽  
Central Banks ◽  
Electronic Payment ◽  
Regulatory Policies ◽  
Digital Money ◽  
Payment Mechanisms ◽  
Retail Payments

The term digital money refers to various proposed electronic payment mechanisms designed for use by consumers to make retail payments. Digital money products have the potential to replace central bank currency, thereby affecting the money supply. This paper studies the effect of replacing central bank currency on the narrowly defined stock of money under various assumptions regarding regulatory policies and monetary operations of central banks and the reaction of the banking system.

scholarly journals From Bitcoin to Central Bank Digital Currencies: Making Sense of the Digital Money Revolution

2021 ◽  
Vol 13 (7) ◽  
pp. 165
Author(s):  
Paulo Rupino Cunha ◽  
Paulo Melo ◽  
Helder Sebastião
Keyword(s):  
Central Bank ◽  
Practical Implication ◽  
Grey Literature ◽  
Central Banks ◽  
Decision Makers ◽  
Making Sense ◽  
Extensive Search ◽  
Trade Offs ◽  
Digital Money ◽  
Open Issues

We analyze the path from cryptocurrencies to official Central Bank Digital Currencies (CBDCs), to shed some light on the ultimate dematerialization of money. To that end, we made an extensive search that resulted in a review of more than 100 academic and grey literature references, including official positions from central banks. We present and discuss the characteristics of the different CBDC variants being considered—namely, wholesale, retail, and, for the latter, the account-based, and token-based—as well as ongoing pilots, scenarios of interoperability, and open issues. Our contribution enables decision-makers and society at large to understand the potential advantages and risks of introducing CBDCs, and how these vary according to many technical and economic design choices. The practical implication is that a debate becomes possible about the trade-offs that the stakeholders are willing to accept.

scholarly journals TREASURY BILLS AND/OR CENTRAL BANK BILLS FOR ABSORBING SURPLUS LIQUIDITY: THE MAIN CONSIDERATIONS

2013 ◽  
Vol 04 (02) ◽  
pp. 1350011
Author(s):  
OBERT NYAWATA
Keyword(s):  
Central Bank ◽  
Banking System ◽  
Central Banks ◽  
Market Development ◽  
Practical Reasons ◽  
Treasury Bills ◽  
Positive Externalities ◽  
Excess Liquidity ◽  
Challenging Question ◽  
Transmission Of Monetary Policy

This paper discusses the challenging question of whether central banks should use Treasury bills or central bank bills for draining excess liquidity in the banking system. While recognizing that there are practical reasons for using central bank bills, the paper argues that Treasury bills are the first best option especially because of the positive externalities for the financial sector and the rest of the economy. However, the main considerations in the choice should be: (i) operational independence for the central bank; (ii) market development; and (iii) the strengthening of the transmission of monetary policy impulses.

scholarly journals Testing for Asymmetric Central Bank Preferences

2018 ◽  
Vol 10 (4) ◽  
pp. 25
Author(s):  
Felix S. Nyumuah
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Developed Countries ◽  
Central Banks ◽  
Policy Implications ◽  
Less Developed Countries ◽  
Reaction Function ◽  
Policy Rule ◽  
Asymmetric Preferences ◽  
Policy Reaction Function

The linear specification of the ideal monetary policy reaction function has been questioned in recent times by researchers. They have suggested a nonlinear framework where central banks exhibit asymmetric behaviours. Despite the important policy implications of having asymmetric central bank preferences, studies have been on single-country basis focusing almost entirely on advanced economies. The aim of this study is to check the existence of asymmetric preferences on the part of central banks in the context of a panel of countries and not just a single a country. The study derives and estimates a nonlinear flexible optimal monetary policy rule, which permits zone-like as well as asymmetric behaviours using panel data from a range of countries both developed and less developed. Although the findings indicate the presence of asymmetric preferences on the output gap across less developed countries, generally, the evidence is in favour of a linear policy reaction function and symmetric central bank preferences. These findings mean that monetary policy is characterised by a linear policy rule and symmetric central bank preferences. The results also indicate that interest rate ‘smoothing’ reaction by monetary authorities is more pronounced in less developed countries than in developed ones.

scholarly journals CENTRAL BANK DIGITAL CURRENCY: ECONOMIC AND LEGAL CHARACTERISTICS

2019 ◽  
pp. 94-100
Author(s):  
T.S. Hudima ◽  
V.A. Ustymenko
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
Banking System ◽  
Legal Framework ◽  
Central Banks ◽  
Digital Currency ◽  
Business Entities ◽  
The Right ◽  
Article 5

The article is devoted to identifying the peculiarities of the central bank digital currency (CBDC), explaining their impact on the monetary policy of the state, and identifying the prospects for the transformation of domestic banking legislation in connection with the implementation of the CBDC. It is noted that the scope of competence of the Central Bank and the legal basis for the issuance of the CBDC will depend on the economic and legal features of the digital currency, the degree of its impact on the monetary policy, the financial stability of the country’s economy and so on. In the process of forming the appropriate legal field and defining the conceptual apparatus in the sphere of emission and circulation of the CBDC, the peculiarities of the use of the latter in economic transactions and the specific functions not inherent in ordinary means of payment should be taken. СBDC initiatives will help: 1) progressively narrow the banking system at the level of the Central Banks (such as the Chicago Plan) by allowing individuals and businesses to deposit directly into the accounts of the Central Banks; 2) increasing confidence of economic entities and individuals in the financial system; 3) strengthening the financial stability of the economy (both domestically and globally). Granting business entities or individuals the right to store digital money directly with the Central Bank can give rise to two main directions of influence on monetary policy: first, to strengthen its transmission mechanism; secondly, lead to banks being disrupted. This may lead to some legal issues regarding (1) the NBU’s area of competence; (2) the constitutional foundations of the legal economic order (Article 5 of the ECU). In particular, it cannot be ruled out that centralization of the production, servicing, and management of the СBDC turnover may violate the principles of competition in business activities, prevent abuse of monopoly position in the market, etc. Keywords: monetary policy, central bank digital currency, financial stability, competence, legal framework, economic operations, issue.

scholarly journals Over- and Underbidding in Central Bank Open Market Operations Conducted as Fixed Rate Tender

2005 ◽  
Vol 6 (1) ◽  
pp. 95-130 ◽  
Author(s):  
Ulrich Bindseil
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Banking System ◽  
Central Banks ◽  
General Question ◽  
Open Market ◽  
Short Term ◽  
Fixed Rate ◽  
Proposed Model

Abstract Open market operations play a key role in allocating central bank funds to the banking system and thereby in steering short-term interest rates in line with the stance of monetary policy. Many central banks apply so-called ‘fixed rate tender’ auctions in their open market operations. This paper presents, on the basis of a survey of central bank experience, a model of bidding in such tenders. In their conduct of fixed rate tenders, many central banks faced specifically an ‘under-’ and an ‘overbidding’ problem. These phenomena are revisited in the light of the proposed model, and the more general question of the optimal tender procedure and allotment policy of central banks is addressed.

scholarly journals Central Banks

2021 ◽  
pp. 11-28
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Central Bank ◽  
Commercial Banks ◽  
Balance Sheet ◽  
Banking System ◽  
Central Banks ◽  
Reserve Requirement ◽  
Money Creation ◽  
Reserve Banking ◽  
Bank Money

AbstractThis chapter develops further the role of a central bank and its interplay with commercial banks. Together, the two ensure the provision of liquidity to the economy, such that the real sectors are shielded from flows of funds originating from household and investors. We also disaggregate the banking system into two banks to represent deposit flows between banks and their impact on the central bank’s balance sheet, and to distinguish between what we call “relative” and “absolute” central bank intermediation. We then integrate deposit money creation by commercial banks into our system of financial accounts, and revisit some old debates, such as the limits of bank money creation and the role of related parameters that the central bank can set (not only the reserve requirement ratio, but also the collateral framework). Finally, we explain the concepts of “plain money” and “full reserve banking” within the financial accounts, and also discuss in this framework the recent proposals regarding central bank digital currency (CBDC).

scholarly journals Modern models of systems of central bank digital currency

2021 ◽  
Vol 37 (2) ◽  
pp. 205-240
Author(s):  
Dmitry Kochergin ◽  
Keyword(s):  
Central Bank ◽  
Central Banks ◽  
Payment Systems ◽  
Bank Of China ◽  
Digital Currency ◽  
Cross Border ◽  
Economic Interpretation ◽  
Key Characteristics ◽  
National Implementation ◽  
Retail Payments

The article examines modern models of digital currency systems of central banks (CBDC) for retail payments and wholesale settlements. The study gives economic interpretation and defines the key characteristics of central bank digital currencies, identifies the features of the main models of digital currencies systems and analyzes the most advanced national implementation projects of CBDC. The study concludes that the digital currencies of central banks are a new (digital) form of fiat money. The implementation of digital currencies of central banks is due to the need to improve the efficiency of the monetary and payment systems and is aimed at preserving of the central banks as a monetary issuer. The main advantages of digital currencies for retail payments are the offer of a highly liquid, low-risk and universally accessible means of payment. The key benefits of wholesale digital currencies are to provide faster, safer, and cheaper cross-border payments. Among the models of digital currencies systems for retail payments (R-CBDC) the model of hybrid system is characterized by the best reliability and speed when processing a large number of payment transactions. Therefore, these systems are the most promising for implementation. Between the models of systems for wholesale payments (W-CBDC) systems with a universal digital currency are the most suitable for eliminating the main problems of cross-border payments. However, the implementation of such systems may require a large number of technological, managerial and financial changes in the payment systems of central banks. Currently, the most advanced project for issuing R-CBDC is the DCEP system of the People’s Bank of China, which is implemented on the basis of a hybrid model. W-CBDC projects are implemented jointly by the central banks of the leading countries, as they require financial and technological unification of settlements. Most projects of W-CBDC involve the use of systems with a convertible or universal digital currency.

Digital currencies hold much promise for central banks

2020 ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
Central Banks ◽  
Content Type ◽  
Emerging Nations ◽  
Or Groups ◽  
Potential Applications ◽  
Digital Money ◽  
The Cost

Subject Central bank digital currencies. Significance Central banks are investigating potential applications of central bank digital currencies (CBDCs) and this month the Financial Stability Board released its consultative paper on regulating and supervising stablecoins, which are pegged to a traditional asset. Issuance of CBDCs is growing closer. In emerging markets (EMs), they could provide governments with a tool to improve their monetary systems. Impacts Digital currencies can give central banks ‘precision monetary policy’ by bypassing intermediaries and targeting sectors or groups. The COVID-19 pandemic highlights the health advantage that digital money has over 'dirty' banknotes. Digital currencies will lower the cost of remittances to emerging nations but over years rather than months as barriers need to be overcome.

Central Bank Digital Currency and Financial Stability in a Dual Banking System

2020 ◽  
pp. 233-252
Author(s):  
Hichem Hamza ◽  
Khoutem Ben Jedidia
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Financial Stability ◽  
Banking System ◽  
Central Banks ◽  
Peer To Peer ◽  
Payment Mechanism ◽  
Digital Currency ◽  
Pros And Cons ◽  
Open Question

The digitization of payment and the development of private digital currencies have constrained central banks to examine the issuance of their own central bank digital currency (CBDC) in order to face the competition of the new peer-to-peer payment system and the decline of cash use. This chapter addresses the topic of CBDC and places the discussion within the context of dual banking intermediation and financial stability. The design of CBDC in term of accessibility, anonymity, interest rate, and payment mechanism depends on the cryptocurrency use and money characteristics regarding the use of cash and deposit. The CBDC Sharia compliant, free of interest or PLS-based, fulfilling money value stability might be a solution. The effects of CBDC on banking intermediation and financial stability depend importantly on the CBDC design and switch significance of banks deposit to CBDC but remain an open question given the pros and cons arguments. In a dual banking system, Islamic banks could limit the disintermediation effect and maintain financial stability under Sharia compliance.

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