Profile picture
Bank of England Research @BoE_Research
, 6 tweets, 2 min read Read on Twitter
[THREAD] SWP 724 by Ben Dyson, Jack Meaning, James Barker and Emily Clayton explores how a central bank digital currency (CBDC) might affect the monetary transmission mechanism (MTM).
bankofengland.co.uk/working-paper/…
2/ If a CBDC is just a payment instrument that doesn’t pay interest, then it only really competes with cash. If it also pays interest, then it starts to compete with bank deposits. Then it starts to have implications for price and volume of bank funding. And therefore the MTM.
3/ Assumes central bank sets interest rate on CBDC. This becomes
floor on all other rates in the economy b/c CBDC is safest store of value +
also provides transactional services, no-one else would want to lend to non-CB agents at lower than CBDC rate.
4/ Individuals generally can’t hold CB reserves, but could hold universally accessible CBDC. So creates new, closer, substitute to bank deposits. So to keep savers funds, banks passthrough of policy rate changes might be faster and fuller: giving monetary policy more “bite”.
5/ If funding costs move more closely with (CBDC) policy rate, then rates on mortgages, credit cards and other loans probably more responsive to policy rate as well. Again, increasing the strength of MTM
6/ CBDC might offer a new way to do QE. Currently, CBs buy assets with newly issued reserves- so have to buy from CB account holders (= using commercial banks as intermediaries). Under universally accessible CBDC, CBs could bypass intermediaries & buy assets off non-banks too.
Missing some Tweet in this thread?
You can try to force a refresh.

Like this thread? Get email updates or save it to PDF!

Subscribe to Bank of England Research
Profile picture

Get real-time email alerts when new unrolls are available from this author!

This content may be removed anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

More from @BoE_Research see all

Profile picture
[THREAD] SWP 761 by Zoltan Jakab + Michael Kumhof argues the standard economic model of banks as intermediaries of loanable funds is wrong. It misrepresents what banks do + doesn’t fit stylised facts about balance sheets + propagation of financial shocks.

bankofengland.co.uk/working-paper/…
2/ Most economic models assume banks are “intermediaries of loanable funds”(ILF): i.e. savers turn up at branches with funds to deposit, which a bank then lends on to borrowers. In this view banks don’t create credit, they just channel existing funds from savers to borrowers.
3/ In practice, banks can make loans by financing through money creation (FMC): i.e. they can loan money without having any pre-existing savings. The bank just creates a new liability (the new funds in borrowers account) + corresponding asset (the new loan on its lending book).
Read 7 tweets
Profile picture
[THREAD] SWP 751 by Michalis Vasios (BoE), @GinoCenedese (@FulcrumAsset), Angelo Ranaldo (@HSGStGallen) looks at how recent reforms to OTC derivatives have affected how interest rate swaps are priced, uses transaction level trade repository data.
bankofengland.co.uk/-/media/boe/fi…
2/ Paper looks at USD denominated fixed-to-floating IRS contracts between 2014-16. Trades more likely to be centrally cleared when they have larger notional value, longer maturity and involve dealers, banks or hedge funds.
3/ Authors find evidence of heterogeneity in swap pricing. Clients pay a higher price to buy interest-rate protection from a dealer if the contract is not CCP cleared. Premium decreases by posting initial margin and with buyer's creditworthiness. Premium is absent for dealers.
Read 4 tweets
Profile picture
[THREAD] Ambrogio Cesa-Bianchi (BoE & @CFMUK), @APFerrero (Oxford) and @arebucci1 (@JHUCarey ): “International Credit Supply Shocks”, Journal of International Economics (forthcoming). Looks at global banks’ leverage as source of domestic boom-bust cycles. sciencedirect.com/science/articl…
2/ Evidence consistent with global financial cycle hypothesis. Global banks’ leverage shocks account for 15% of variation in cross-border bank credit, and explain 10% of variation of domestic consumption: in line with what typically explained by domestic monetary policy shocks.
3/ Impact of external shock varies across countries: bigger with higher maximum LTV ratios, higher shares of foreign currency debt, lower capital controls, and fixed exchange rates. sciencedirect.com/science/articl…
Read 3 tweets

Related threads

Profile picture
This interview with a "yellow vest" is a fascinating glimpse into what the people actually want/demand from their money:

1) They want their country to have monetary sovereignty and ability to inflate the supply. They see non-sovereign monetary policy as dictatorship.
2) "Debt is fraud"
They are tired of the fractional reserve banking system that gives commercial banks the power to create money.

3) "Banks play with people's savings to speculate"
Also correct, it is insane that we let this happen on the same balance sheet as payments.
4) "When they successfully speculate, they get all the profits; when they lose billions, taxpayers bail them out"
These mutually reinforce each other. Banks grow too big to fail in a FR system, and bailing them out strengthens behavior that leads to bailouts in the first place.
Read 7 tweets
Profile picture
1/ On a long late night train ride back to NYC and killing some time to read IMF Managing Director Christine Lagarde’s latest speech on the “fintech revolution” and the new IMF paper on Central Bank Digital currencies. Real-time thoughts as I read...
2/ Links here:

Lagarde’s speech: imf.org/en/News/Articl…

IMF paper: imf.org/en/Publication…
3/ I am starting with Lagarde’s speech first, which is focused on the changing nature of money. In short, money itself is changing. In the increasingly digitalized world, we expect money to become more convenient, user-friendly, safe, readily available for online & P2P use.
Read 25 tweets
Profile picture
@MobilePunch No Violations In Approval Of N5.8Billion Emergency Food Intervention Fund For Northeast.
#Thread
@MobilePunch it is important to understand the context of the transaction. This was at a time when internally displaced persons and their host communities faced very severe food shortages throughout the North East, as a result of successive poor harvests and abandoned farmlands,
@MobilePunch minimal cross-border cash crop trade and lost economic opportunities.
Read 27 tweets
Profile picture
A couple reflections on what regulators and central bankers are thinking about, having attended the 'cryptoasset' days of the DC Fintech week at the IMF
The attendees: lots of lawyers, lots of federal regulators, a few central bankers, a few IMF/WB types, some academics. Very few crypto people

The general feeling towards cryptocurrency specifically was mostly indifference, mixed with some vague hostility.
Most speakers that broached the subject were aware of Bitcoin's mechanics and PoW. Virtually everyone that mentioned it expressed skepticism about Bitcoin's scalability and/or the sustainability of PoW
Read 10 tweets
Profile picture
Le rapport Landau est sorti. #Thread pour présenter mes impressions après lecture rapide. Je vais d’abord commencer par des remarques générales et contextuelles nécessaires pour comprendre la guerre économique qui s’est lancée et à laquelle il faut que nous participions.
1. Précisons que ce rapport a été commandé en Janvier, et livré tout début Juillet. Cela donne 6 mois pour comprendre un sujet aussi vaste & complexe que sont les cryptos et blockchain. N’importe quelle critique doit garder cela en tête : 6 mois, c’est TRES peu !
2. Je trouve que pour quelqu’un qui partait de presque 0, le rapport est étonnant de qualité. On y aborde des problématiques techniques (on y parle même de sharding & de Lightning Network !), monétaires, juridiques etc.
Read 26 tweets
Profile picture
Here are my favorite quotes from this amazing book. #THREAD
1. "Bitcoin can be best understood as distributed software that allows for transfer of value using a currency protected from unexpected inflation without relying on trusted third parties"
2. "While Bitcoin is a new invention of the digital age, the problems it purports to solve - namely, providing a form of money that is under the full command of its owner and likely to hold its value in the long run - are as old as human society itself"
Read 137 tweets

Trending hashtags

#AmericanEconomy #CrabgrassFrontier #CitiesImagined #EphemeralContent #filming #Ecuadorian #Photovoltaique #nocebo #TrumpCampaign #Twitter #SEO #FBI #MOAB #GRU #brand #Memo #SuburbanErasure #np #corruption #Rajinikanth #Mercer #BestOf #PublicRelations #TGVAtlantique #mobile

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member and get exclusive features!

Premium member ($3.00/month or $30.00/year)

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

-bottom:dotted 1px #999}