1/ CBDC vs crypto = commercial banking system vs. shadowing banking system.
There are two somewhat decoupled bank systems, where money/credit creation are somewhat independent.
There are two somewhat decoupled bank systems, where money/credit creation are somewhat independent.
2/ We have the commercial banks that issue loans to household, business & government
money creation is mostly done via term loans, and its supply affects consumer price inflation in goods & services.
CBDC is in this realm.
money creation is mostly done via term loans, and its supply affects consumer price inflation in goods & services.
CBDC is in this realm.
3/ shadow banking system, loosely speaking, has to do with financial assets (tradable securities).
Money creation is done via a hybrid of term loans (UST, corporate bond) and callable loans (margin debt, overnight repos, derivatives)
Money creation is done via a hybrid of term loans (UST, corporate bond) and callable loans (margin debt, overnight repos, derivatives)
4/ the money creation in the shadow banking system can be very much decoupled from that in the commercial banking system.
and that's why we sometimes have high asset-price inflation with low consumer price inflation (2010-present), and the opposite situation (1970-1983)
and that's why we sometimes have high asset-price inflation with low consumer price inflation (2010-present), and the opposite situation (1970-1983)
5/ now cryptos, by design and by circumstance (private money in the US is illegal), have made a choice of going into the realm of the shadow banking system.
So its appreciation/depreciation has little to do with CPI, more to do with constraint in the shadow banking system.
So its appreciation/depreciation has little to do with CPI, more to do with constraint in the shadow banking system.
6/ My understanding is that part of the reason for China (probably India too) to make a conscious decision to ban crypto is to limit the size of shadow banking system, and to focus on the real economy ( via DCEP)
7/ No matter when Fed releases the digital USD, it will stay largely in the commercial banking sector.
By delaying digital USD and letting free-range crypto to grow, the Fed has already made a choice: shadow banking system over commercial banking system.
By delaying digital USD and letting free-range crypto to grow, the Fed has already made a choice: shadow banking system over commercial banking system.
8/ speculation over organic-growth/manufacturing.
I think this is one of the biggest policy differences between the US and China and will have profound impacts in the years to come.
I think this is one of the biggest policy differences between the US and China and will have profound impacts in the years to come.
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