Central banks and digital transformation
| Lecture handout: Central banking and digital transformation* |
We are seeing unprecedented innovation in payment technologies, with disruptive firms encroaching on activities that many think should be left to central banks. But why not think creatively about the opportunities and threats from decentralised money? What is the proper role of a monetary authority in a system that is fit for the twenty first century? This lecture will equip students with the skills to take a radical looks at contemporary issues such as crypto currencies and central bank activities.
Background readings:
- Bitcoin: A Primer for Policymakers, Mercatus Center
- The Bullish Case for Bitcoin, Vijay Boyapati, March 2nd 2018 (for a printable pdf see here)
- How crypto enables economic freedom, Brian Armstrong, The Coinbase Blog, September 23rd 2021
- “Money and payments: The US dollar in the age of digital transformation” Board of Governors of the Federal Reserve System, January 2022
- “Central banks, the monetary system and public payment infrastructure: lessons from Brazil’s Pix” BIS Bulletin No. 52
Current policy relevance:
In January 2022 the Fed released a paper on CBDC’s. In response, George Selgin wrote a briefing paper that advocated expanding the set of providers that the Fed deals with, to obtain the competition and innovation that comes from the private sector without the Fed having to issue their own digital currencies. Stablecoin issuers do not require the same regulatory oversight as traditional banks, by providing access to the Fed’s system they simply need to ensure that they fully back their coins with central bank reserves (and possibly short term Treasury certificates). This would require:
- Bank licenses should be available to non-traditional banks (i.e. institutions that don’t do all of the activities typically associated with a bank, such as maturity transformation)
- The Fed should allow fintech companies to have master/settlement accounts (which the Bank of England did in 2018)
Recommended audio:
- Hashpower – Part 1, Investors Field Guide – a fantastic early introduction to blockchain technology and potential of crypto assets
- “Larry White on stablecoins and CBDCs”, Macro Musings, August 2021
- “George Selgin on Bitcoin and CBDCs”, Macro Musings, October 2021
Recommended video:
If you are totally new to concepts like blockchain, bitcoin and NFTs and want a thorough account of the history and development, in a well produced an informative documentary that takes a highly skeptical and cynical approach, I recommend this:
For a more positive view of NFTs, an identification of the context in which they’ve emerged (post global financial crisis and great stagnation), and subjectivist approach to value, see this Twitter thread.
| Learning Objectives: Provide an assessment of central bank responsibilities in the digital currency landscape.
Cutting edge theory: Making assessments of digital and crypto currencies. |