Thread:
1- CENTRAL BANK DIGITAL CURRENCY (CBDC)
Numerous monetary authorities around the world consider introducing (experiment with) retail CBDCs: their introduction would mean that private sector agents’ money holdings could be held as an electronic central bank liability.
1- CENTRAL BANK DIGITAL CURRENCY (CBDC)
Numerous monetary authorities around the world consider introducing (experiment with) retail CBDCs: their introduction would mean that private sector agents’ money holdings could be held as an electronic central bank liability.
2- Commercial banks have held their reserves in electronic form at their central bank accounts for decades, which is conform with the CBDC definition and just being confined to banks. imf.org/en/Publication…
3- An unregulated introduction of CBDC creates the risk of a cliff-effect threatening to undermine financial stability. It is conceivable that the benefits of CBDC will not immediately be internalized by private sector agents.
4- In a healthy economy, old conventions with regard to the treatment of bank deposits as money may continue to hold, in particular when commercial bank deposit interest rates would be set at a margin above a CBDC rate
(whether itself zero or positive).
(whether itself zero or positive).
5- This may change abruptly at the onset of a crisis, however. If the viability of private banks would be called into question, agents may disregard the higher interest on bank deposits and collectively flee into CBDC. This would effectively constitute an “electronic” bank run
6- with all the known consequences for banks’ liquidity (reserve shortage/insufficiency). Given the relative inconvenience of physical cash compared to bank
deposits, the promise of deposit insurance is an adequate tool for mitigating this risk in the current monetary system.
deposits, the promise of deposit insurance is an adequate tool for mitigating this risk in the current monetary system.
7- This may, however, no longer be the case in a system where a convenient alternative to deposit money is available.
A 100 percent backing of loans by digital CBDC, if implemented as such, would indeed imply an implementation of the Chicago plan as considered in the 1930s in the aftermath of the Great Depression. The shift to such a full money system could also come about without regulations,
9- if private sector agents decide to prefer CBDC to bank deposits as social money. It would in any case mark a highly significant change to the financial system structure.
10- Quotes about money creation from this IMF study on 'Money Creation in Fiat and Digital Currency Systems' -imf.org/en/Publication… 
11- Some more historical quotes on money creation
12 and end - Some more historical quotes on money creation
