Digital Euro: A (Digital) Symbol of Progress and Integration in Europe

The emergence of crypto assets such as Bitcoin and Ether exposed a number of advantages that these digital assets based on distributed ledger technology (DLTs) can offer. As cash is becoming less and less popular in the eurozone, the European Central Bank (ECB) is currently looking at the scenario of creating a digital euro as a kind of central bank money that may be used by the general public. DLT may be used to tokenize central bank money via digital currencies (CBDCs) issued by central banks, as well as to digitally represent bank deposits. The purpose of this article is to analyse what are the solutions for the future digitization of the monetary and financial systems and if current CBDC projects and prototypes, including those by the Chinese and Swedish central banks and the attempts of the ECB, have the chance to succeed with or without DLT.

On the money creation approach to banking

We study today’s two-tier money creation and destruction system: Commercial banks create bank deposits (privately created money) through loans to firms or asset purchases from the private sector. Bank deposits are destroyed when households buy bank equity or when firms repay loans. Central banks create electronic central bank money (publicly created money or reserves) through loans to commercial banks. In a simple general equilibrium setting, we show that symmetric equilibria yield the first-best level of money creation and lending when prices are flexible, regardless of monetary policy and capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and the ones in which an adequate combination of monetary policy and capital regulation can restore efficiency. Finally, we provide a series of extensions and generalizations of the results.

A Classical-Keynes Model of Money and Finance for Transiting Economies

Marx stands for ‘classical’ and ‘Keynes’ is represented by the stock-flow-consistent framework of Godley–Cripps–Lavoie. Agriculture proxies for basics in the classical departmental schema and does not dissolve into manufacturing. We establish the primacy of commercial/central bank money in the production and circulation of basics. Financial institutions mediate between savers and investors in the production of capital goods. Finally, corporations can issue shares to underwrite their investment plans. Financialisation is captured by share buybacks. JEL Codes: B52, E12

Central Banks Digital Currencies: World Experience

Received 28.07.2020. The article examines issues related to the introduction of central bank digital currencies (CBDC) for retail payments and wholesale settlements. The study defines and classifies central bank digital currencies, researches the main models of CBDC systems. The article also analyzes the features of various national projects for issuing Central bank digital currencies. The paper uses methods of economic-statistical and functional-structural analysis. The study concludes that CBDC are a new form of central bank money. Digital currencies can be issued in various issuing systems for the purpose of retail payments or wholesale settlements. Among the models of CBDC systems for retail payments (R-CBDC) the direct system model is the most attractive for its simplicity. This model eliminates the dependence of the Central bank on any financial and payment intermediaries. Models of synthetic and hybrid R-CBDC systems are characterized by reliability and speed in processing multiple transactions which makes them the most promising for implementation. Among the models of CBDC systems for wholesale payments (W-CBDC) the model of the system with a universal digital currency (U-W-CBDC) may be the most suitable for eliminating the main disadvantages of modern cross-border payment systems. However, a large number of technological and financial changes as well as the high operating costs of the U-W-CBDC can make such systems difficult to implement for non-developed financial market infrastructure countries. National financial regulators have different motivations for issuing digital currencies. The main advantages of digital currencies for retail payments may consist in providing users with highly liquid, low-risk, universally available means of payment. The main advantages of wholesale digital currencies are that they offer faster, safer, cheaper cross-border payments. The most advanced projects for issuing R-CBDC can be considered DCEP (People’s Bank of China) E-krona (Central Bank of Sweden). The most successful pilot projects for issuing W-CBDC are the projects Jasper (Central Bank of Canada) and Ubin (Monetary Authority of Singapore), which were able to achieve interoperability in conducting cross-border payments. Currently most CBDC are retail based on the use of distributed ledger technology and implemented in the form of DLT-tokens. Countries that develop digital currency systems can be divided into three groups. The first group is countries where the introduction of CBDC can be designed to support the national demand for central bank money (Sweden, Norway, Singapore, etc.). The second group – countries for which the adoption of digital currencies can afford to keep the place of national currencies in international settlements (USA and EU) or expanding the use of national currencies at the international level (China). The third group represents countries for which the introduction of digital currencies may be associated with the control of national monetary circulation and de-dollarization of the financial system (Uruguay, South Africa, Cambodia, etc.).

Money for the Issuer: Liability or Equity?

This study analyzes the nature of money through the lens of the international principles of accounting and lays the foundations of what it calls the accounting view of money (AVM). Using international accounting principles, the AVM argues that the fiat monies issued by the state (typically, cash, banknotes, and central bank money) are not debt and that in fractional reserve regimes, only a share of commercial bank money can be regarded as debt. The AVM argues, instead, that state monies and the nondebt share of commercial bank money are net wealth of their holders and net worth (equity) of their issuers and determines how the seigniorage associated with money issuance should be accounted for correctly in the financial statements of the issuing institutions. The AVM points to the correct way to account for the various forms of money in the financial statements of the issuing institutions, clarifies what the different accounting treatments imply for a correct understanding of the concept of money, and evaluates the related economic and economic policy implications.

Rethinking Monetary Sovereignty: The Global Credit Money System and the State

This article proposes a conception of monetary sovereignty that recognizes the reality of today’s global credit money system. Monetary sovereignty is typically used in a Westphalian sense to denote the ability of states to issue and regulate their own currency. This article rejects the Westphalian conception. Instead, it proposes a conception of effective monetary sovereignty that focuses attention on what states are actually able to do in the era of financial globalization. The conception fits the hybridity of the modern credit money system by acknowledging the crucial role not only of central bank money but also of money issued by regulated banks and unregulated shadow banks. These institutions often operate ‘offshore’, outside of a state’s legal jurisdiction, which makes monetary governance more difficult. Monetary sovereignty consists in the ability of states to effectively govern these different segments of the monetary system and thereby achieve their economic policy objectives.

Prices may rise if lending picks up in major economies

Significance Similar fears accompanied the 2008-09 anti-crisis response, but did not come true. The main reason is that, while quantitative easing and other measures boost the monetary base (M0), inflation is more likely to be fired by strong growth in the broadest monetary aggregate (M3); so far, there has been limited pass-through from M0 to M3. Impacts Central bank money supply is underwriting stock market gains, an intended monetary policy outcome; but stock market volatility is rising. If higher inflation does occur, central banks have the tools to control it; indeed, rising prices has been a central monetary policy goal. If inflationary pressures do appear, reducing the large volumes of banks’ excess reserves will require adroit management.