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Briefing
Should Central Banks Worry About Facebook's Diem and Alibaba's Alipay?
Alibaba — an e-commerce platform in China similar to Amazon — has created its own payment system (Alipay) to provide currency-like services: facilitating transactions, supporting peer-to-peer transfers and paying interest. Platforms like Facebook and Amazon are also researching creating their own digital currencies, but so far they have relied primarily on existing payment methods. What drives platforms to develop their own digital currency rather than use existing cash and card options? And should central banks and financial regulators worry about platforms issuing their own currency?
Journal Article
A Short Introduction to the World of Cryptocurrencies
In this article, we give a short introduction to cryptocurrencies and blockchain technology. The focus of the introduction is on Bitcoin, but many elements are shared by other blockchain implementations and alternative cryptoassets. The article covers the original idea and motivation, the mode of operation and possible applications of cryptocurrencies, and blockchain technology. We conclude that Bitcoin has a wide range of interesting applications and that cryptoassets are well suited to become an important asset class.
Briefing
Should the Fed Issue Digital Currency?
The United States might benefit from eventually replacing most physical cash with central bank digital currency (CBCD), but first the Federal Reserve must resolve several key policy and implementation issues, such as establishing comparative advantage over private issuers and ensuring safety and soundness.
Working Paper
Assessing the Impact of Central Bank Digital Currency on Private Banks
I investigate the theoretical impact of central bank digital currency (CBDC) on a monopolistic banking sector. The framework combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of banking. There are two main results. First, the introduction of interest-bearing CBDC increases financial inclusion, diminishing the demand for physical cash. Second, while interest-bearing CBDC reduces monopoly profit, it need not disintermediate banks in any way. CBDC may, in fact, lead to an expansion of bank deposits if CBDC competition compels banks to raise their ...
Working Paper
Assessing the Impact of Central Bank Digital Currency on Private Banks
I investigate how a central bank digital currency (CBDC) can be expected to impact a monopolistic banking sector. My framework of analysis combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of a monopoly bank. I find that the introduction of a CBDC has no detrimental effect on bank lending activity and may, in some circumstances, even serve to promote it. Competitive pressure leads to a higher monopoly deposit rate which reduces profit but expands deposit funding through greater financial inclusion and desired saving. An appeal to available ...