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Post by JP (admin) on Apr 2, 2018 2:37:52 GMT
Let's continue on this non-criminal stuff. You're probably right in that it's the smaller and medium-sized deposits, the ones under guaranteed limits, and not the really large ones that are most vulnerable to flights into cash/CBDC. I think the occasional panics are already so destabilizing, even if (or perhaps because?) they are rare, that we better make sure CBDC doesn't make things worse. If people like Bill Gross were considering "taking their money out of the bank" in 2008, then we don't need lines at ATMs to have a bank run. People are also quite lazy, and many think they might look stupid queuing to an ATM, but if you can convert a deposit into CBDC while sitting at home or on a bus, it would make a lot of sense doing it, just in case. People might, of course, behave quite irrationally and in mysterious ways, so all we can have at this point are educated guesses. I think BIS, in the report I linked to above, mentioned that central banks could put limits to conversions in times of stress. That would, no doubt, feed the panic, and the limits in my opinion would have to be really small as it would be easy for everyone to withdraw the maximum amount once a day. I, too, am for better lending practices and avoiding credit bubbles. But really, would a bigger threat of a devastating bank run help achieve that? I doubt it. The potential for a bank run has always been there, but it's the realities that have stopped it from happening. Authorities just cannot, or won't, let it happen. And that won't change if you increase the potential for a devastating run. At best, the panic will be worse, and authorities need to take more drastic measures to end the panic. I agree that a CBDC would allow someone who typically uses cash to make a cleaner, more rapid dash out of their bank. But the potential for a digital bank run is something that banks have had to deal with for many years now, namely the threat of wholesale depositors rapidly moving into the deposits of a safer bank. The 2008 crisis was largely characterized by these sorts of electronic bank runs, not old fashioned line-ups at ATMs (Northern Rock being one of the exceptions?). So perhaps CBDC might make enable a new route for electronic bank flight, but this isn't a risk that banks haven't dealt with before. In an extreme scenario, all banks--even the safest ones--may face a run into banknotes and CBDC. Conversion limits are an option, but as you point out this would only make the problem worse. If you threaten to close the door while people are panicking, people will only run faster to make the cutoff. Unlike banknotes, there is the ability to reduce the interest rate on CBDC during a panic, thus helping to alleviate the demand for CBDC. The idea is that any member of the public can get as much CBDC as they want, but they have to pay a premium. This will hopefully make people think twice before converting. The potential benefits of CBDC you talk about assume a society where cash is still widely used and where a large part of the population want to use an anonymous payment alternative. For instance in Sweden or Norway, where I'm based, people don't anymore walk or drive to the bank to get cash. The ones who still want cash get it by asking the cashier in a grocery store to give them some cash. Many people don't use cash at all (I don't have a need for anonymity, so I use very little cash). What you are talking about are really the benefits of a cashless payment system that could as well be run by private banks and other payment providers -- not the benefits of CBDC. I think the only extra or unique service that the central bank can provide retail customers (criminals and non-criminals) is anonymity. For those who are willing to unshield themselves a positive rate of interest could be paid, but of course the private sector could provide a product that does this too, say pre-paid debit cards that pay interest. If non-criminals simply don't want anonymity, that damages the cause for CBDC. In that case, the main reason for providing CBDC is to meet criminal demand for anonymous payments. (There is also a public interest case to be made for a decentralized and robust retail payments option, but that's a different topic). Detailed survey data may be useful here. Perhaps Swedes don't have the same demand for anonymous payments that Germans do? |
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Post by JP (admin) on Apr 2, 2018 2:48:16 GMT
General purpose CBDCs could be anonymous, privacy cryptocurrencies have already demonstrated that. But it's unlikely central banks would risk even the appearance of aiding and abetting, no matter what seniorage or fees they're getting. Widespread anonymous access to central bank accounts would be very hard to justify and implement, a nonstarter. I don't think this is central bankers' decision to make. Central bankers are beholden to the political process, and if elected officials have determined that there is a will for anonymous money, central bankers will have to comply, reputation risk or not. That's not to say that central bankers shouldn't have some input into the process. They should sponsor the research effort (as they are doing now), faithfully describing the pros and cons for anonymous money to the legislative body, and only after this body has heard input from other stakeholders should a decision should be made. Central banks for now seem more focused on making payments faster and opening payment systems to nonbanks. So a specific purpose CBDC contained within these faster payment systems (or in FX, bond and equity settlement systems) seems much more likely. This seems closer to the current remit of many central banks and could easily operate in parallel to existing arrangements. If successful, it can be slowly expanded to more participants and uses. This is definitely a less controversial possibility. |
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Post by Juan Gutierrez on Apr 2, 2018 4:24:58 GMT
Agreed. If elected officials think there is a public will for anonymous money, central bankers will have to comply. Those elected officials would have to explain locally and internationally the impact on crime and taxes.
Anonymous money doesn't seem enough of a priority for anyone but central banks. If elected officials decree it, the central bank's independence and charter are weakened.
If the anonymous money of a foreign bank, tech company, central bank or cryptocurrency is widely adopted locally, the central bank's monetary program and capital controls are weakened.
If a central bank's own anonymous money becomes wildly successful, the central bank may also be outpaced in independence, charter, monetary policy or foreign exchange.
Caught in this catch-22, it seems safer to start with CBDCs in the contained environments of payment and settlement systems, even if the ultimate objective is widespread access and use.
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Post by oliver on Apr 2, 2018 15:37:59 GMT
What about the the fact that one is given access to a the only institution that is officially too big to fail? Bank runs are not runs into anonymity, they're runs into safety. From that perspective I'd say it would be enough to offer full disclosure CBDC. It's an offer of permanent safety. One would have to weigh the profits against the potential additional cost of bank runs created by such an offer. |
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Post by JP (admin) on Apr 3, 2018 16:05:15 GMT
What about the the fact that one is given access to a the only institution that is officially too big to fail? Bank runs are not runs into anonymity, they're runs into safety. From that perspective I'd say it would be enough to offer full disclosure CBDC. It's an offer of permanent safety. One would have to weigh the profits against the potential additional cost of bank runs created by such an offer. Private bank deposits already offer permanent safety, thanks to deposit insurance. You might argue that this applies to only the first $x in deposits, but everyone knows that in a bind that ceiling gets pushed up or, in the extreme, removed so that the government insures the entire banking sector. Large actors like corporations may hold deposits in excess of formal and informal deposit insurance ceilings, but they can always get permanent safety by investing in short-term t-bills, which from the perspective of a corporation are basically money. So given that insured deposits and t-bills already exist, CBDC's offer of permanent safety introduces nothing that isn't already there, and therefore is not a unique service. |
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Post by oliver on Apr 4, 2018 7:03:17 GMT
What about the the fact that one is given access to a the only institution that is officially too big to fail? Bank runs are not runs into anonymity, they're runs into safety. From that perspective I'd say it would be enough to offer full disclosure CBDC. It's an offer of permanent safety. One would have to weigh the profits against the potential additional cost of bank runs created by such an offer. Private bank deposits already offer permanent safety, thanks to deposit insurance. You might argue that this applies to only the first $x in deposits, but everyone knows that in a bind that ceiling gets pushed up or, in the extreme, removed so that the government insures the entire banking sector. Large actors like corporations may hold deposits in excess of formal and informal deposit insurance ceilings, but they can always get permanent safety by investing in short-term t-bills, which from the perspective of a corporation are basically money. So given that insured deposits and t-bills already exist, CBDC's offer of permanent safety introduces nothing that isn't already there, and therefore is not a unique service. In the context of deposit insurance, that's probably right. I was playing the devil's advocate - I'm not convinced by CBDC, anonymous or not. But I thought you were against deposit insurance? Would the outcome change if (explicit) deposit insurance were dropped? I think that is the setup that the sound money people envision. Here's an article from yesterday's Guardian about Swedes apparently having second thoughts about dropping physical cash altogether. I would have thought that such safety concerns would be less pronounced if payments went through the central bank. And I would no count anonymity as being a safety feature. |
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Post by JP (admin) on Apr 4, 2018 15:23:17 GMT
In the context of deposit insurance, that's probably right. I was playing the devil's advocate - I'm not convinced by CBDC, anonymous or not. But I thought you were against deposit insurance? Would the outcome change if (explicit) deposit insurance were dropped? I think that is the setup that the sound money people envision. Here's an article from yesterday's Guardian about Swedes apparently having second thoughts about dropping physical cash altogether. I would have thought that such safety concerns would be less pronounced if payments went through the central bank. And I would no count anonymity as being a safety feature. Even if explicit deposit insurance were dropped, it would still exist implicitly. New Zealand and Australian didn't have deposit insurance, but it was suddenly introduced during the credit crisis. So even in a country without explicit deposit insurance, a new CBDC would not provide the public with a unique opportunity to get 100% safety; they already have it implicitly. I don't like deposit insurance, but we need to be realistic about the fact that it exists and that it makes the safety of a CBDC redundant. |
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Post by oliver on Apr 5, 2018 9:31:25 GMT
In the context of deposit insurance, that's probably right. I was playing the devil's advocate - I'm not convinced by CBDC, anonymous or not. But I thought you were against deposit insurance? Would the outcome change if (explicit) deposit insurance were dropped? I think that is the setup that the sound money people envision. Here's an article from yesterday's Guardian about Swedes apparently having second thoughts about dropping physical cash altogether. I would have thought that such safety concerns would be less pronounced if payments went through the central bank. And I would no count anonymity as being a safety feature. Even if explicit deposit insurance were dropped, it would still exist implicitly. New Zealand and Australian didn't have deposit insurance, but it was suddenly introduced during the credit crisis. So even in a country without explicit deposit insurance, a new CBDC would not provide the public with a unique opportunity to get 100% safety; they already have it implicitly. I don't like deposit insurance, but we need to be realistic about the fact that it exists and that it makes the safety of a CBDC redundant. I agree with that, although I think proponents of 'sound money' and the like would probably argue that a CBDC is a type of deposit insurance. Quite literally, in the sense that institutions aren't insured but depositors can bring their money to safety at the click of a button. That is wrong headed, as I find Antti has argued convincingly. Maybe deposit insurance should be renamed, though.
This also narrows the case for or against anonymous CBDC. I'm with Juan Gutierrez @ Apr 2, 2018 at 3:19am for the moment.
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Post by Abram on Apr 5, 2018 11:32:28 GMT
Antti asks: "Why the central bank, and not the private banks?" Since banknotes pay no interest, the central bank captures seigniorage revenue from those who hold the notes. A large proportion of note holders will be tax evaders, so the central bank is in essence "stealing" some of the money back from them, which it will remit back to the government each year. I wanted to ask JP: "Why the central bank, and not smart contracts? Why not BitUSD, Dai and ...?" Another question is that: Why do you think the only application of cryptocurrencies is to be used for tax evasion and criminal activity?! The end of central banking was what many economists hoped to be able to see someday. Decentralization of money can help us to start finding out better monentary systems than today ones. As Hayek mentioned: "The interesting fact is that what I have called the monopoly of government of issuing money has not only deprived us of good money but has also deprived us of the only process by which we can find out what would be good money. We do not even quite know what exact qualities we want because in the two thousand years in which we have used coins and other money, we have never been allowed to experiment with it, we have never been given a chance to find out what the best kind of money would be." |
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Post by JP (admin) on Apr 5, 2018 18:45:00 GMT
I wanted to ask JP: "Why the central bank, and not smart contracts? Why not BitUSD, Dai and ...?" I'm open to the idea of Tether, BitUSD, Dai, and other stablecoins. We'll have to see how they play out. Another question is that: Why do you think the only application of cryptocurrencies is to be used for tax evasion and criminal activity?! Hmmm, where have I said that? This thread isn't about cryptocurrencies, it's about CBDC. Different thing. The end of central banking was what many economists hoped to be able to see someday. Decentralization of money can help us to start finding out better monentary systems than today ones. The banknote system is a highly decentralized system, as I've argued many times on my blog. The goal of a CBDC should be to capture this decentralization. Too much decentralization is not a good thing since at some point the medium loses its anchor to reality (i.e. bitcoin, Somali shillings) and its purchasing power destabilizes. A CBDC should be designed to strike the right balance; decentralization to preserve anonymity and censorship resistance, centralization to tether its value to the existing unit of account. |
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Post by Abram on Apr 6, 2018 7:47:22 GMT
Another question is that: Why do you think the only application of cryptocurrencies is to be used for tax evasion and criminal activity?! Hmmm, where have I said that? This thread isn't about cryptocurrencies, it's about CBDC. Different thing. You didn't say this directly, but if you take a look at the posts of this thread you can easily see that this seems being assumed in many of them! Why are you interested in CBDC? You told to be able to tax criminal activity. |
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Post by Abram on Apr 6, 2018 8:17:16 GMT
The end of central banking was what many economists hoped to be able to see someday. Decentralization of money can help us to start finding out better monentary systems than today ones. The banknote system is a highly decentralized system, as I've argued many times on my blog. The goal of a CBDC should be to capture this decentralization. Too much decentralization is not a good thing since at some point the medium loses its anchor to reality (i.e. bitcoin, Somali shillings) and its purchasing power destabilizes. A CBDC should be designed to strike the right balance; decentralization to preserve anonymity and censorship resistance, centralization to tether its value to the existing unit of account. I am a money reformist and I am studying about problems of today monetary system and different approaches to solve them for several years. What makes decentralized money an interesting innovation is that we can decide who we should create money for. Today bankers decide who should benefit from 97% of our money creation. Decentralization of money is not about anonymity, it is about replacing the the kingdom with democracy in the economics. With the help of blockchain, we can replace the sovereignty of bankers and politicians in money creation with the rule of law, and experience a new level of freedom. You told: "Too much decentralization is not a good thing since at some point the medium ... purchasing power destabilizes." What destabilizes most of first generation of cryptocurrencies is that they are simulating GOLD instead of MONEY! The root of not being stable is not decentralization. As you know better than me, what is making our today money stable is adjusting the supply with demand by central banks. Well. Smart contracts can simulate what is being done by central banks much better than them. Smart contracts can simulate MONEY as simple as what they did to simulate GOLD. And it is what exactly is being done by BitShares and MakerDAO. I just published an article on Medium today, discussing how smart contracts can replace today central banks. hackernoon.com/blockchain-after-the-gold-rush-e1c6d3044daeI would appreciate it if you could have a look and provide a feedback on that. |
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Post by Antti Jokinen on Apr 7, 2018 23:38:10 GMT
Abram, who should we then create money for? I didn't get it.
Today we create money for people who sell something. Or, depending on viewpoint, for people who promise to sell something later and are deemed creditworthy by banks. Someone has to assess the creditworthiness of these individuals, and today it is banks who are trusted with that task. If not banks, who should it be? Peers, democratically? Based on algorithms?
I don't think inflation/deflation, price stability, depends solely or even mainly on supply of money meeting demand for money. I think it's more complicated. And that's why I'm not convinced of the ability of smart contracts to replace central banks. I don't even think the main task of central banks is to control the quantity of money in the economy.
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Post by Abram on Apr 9, 2018 3:50:40 GMT
Antti, We are not creating money for people today! We are creating money for financial markets today. Did you see this Positive Money campaign? positivemoney.org/2016/08/create-money-for-people-not-financial-markets/It is clear that today banking system is not working properly. Today banks are not doing the best in selecting who should win the new created money. At least in past 2 decades we are just creating money to make bubbles in financial markets. Current system is giving almost all of new created money to speculators. If we created money for people, we could see its economic growth. I think technology can help us to find and experience better monetary system than today one. But as Hayek mentioned: "The interesting fact is that what I have called the monopoly of government of issuing money has not only deprived us of good money but has also deprived us of the only process by which we can find out what would be good money. We do not even quite know what exact qualities we want because in the two thousand years in which we have used coins and other money, we have never been allowed to experiment with it, we have never been given a chance to find out what the best kind of money would be." Algorithms can help us, wisdom of crowd can help us, but the most important problem which should be solved is monopoly. If this would be solved tens of solutions can start competing and help us find better ways to handle money creation gradually. |
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Post by Abram on Apr 9, 2018 4:02:04 GMT
I don't think inflation/deflation, price stability, depends solely or even mainly on supply of money meeting demand for money. I think it's more complicated. And that's why I'm not convinced of the ability of smart contracts to replace central banks. I don't even think the main task of central banks is to control the quantity of money in the economy. I know that it is much more complicated, but this article is a beginner guide for blockchain community who don't know anything about today monetary system. What I know is that main task of central banks is adjusting interest rates. They don't control the quantity of money directly. They allow market decide how much money it needs. But they use interest rates as the flag that indicates if money is created more or less than its demand. You told that you don't think price stability depends MAINLY on supply of money meeting its demand. Can you explain more what you think it mainly depends to please? |
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