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2. Cryptocurrencies and All That: Two Ideas from Monetary Economics
- Author:
- Jesús Fernández‐Villaverde
- Publication Date:
- 06-2021
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The monetary arrangements of societies are the result of the interplay of technology and ideas. Technology determines, for example, which coins can be minted and at what cost. For centuries, minting small‐denomination coinage was too costly to induce Western European governments to supply enough small change (Sargent and Velde 2002). Only the arrival of steam‐driven presses fixed this problem (Doty 1998). Simultaneously, ideas about private property and the scope of government determined whether private entrepreneurs were allowed to compete with governments in the supply of small change (Selgin 2008). Technology and ideas about money engage dialectically. Technological advances shape our ideas about money by making new monetary arrangements feasible. Ideas about desirable outcomes direct innovators to develop new technologies.
- Topic:
- Economics, Science and Technology, Monetary Policy, and Cryptocurrencies
- Political Geography:
- Europe and Global Focus
3. Ten Stablecoin Predictions and Their Monetary Policy Implications
- Author:
- Caitlin Long
- Publication Date:
- 06-2021
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Stablecoins are financial obligations issued on a blockchain. They are generally fully collateralized with either fiat currency deposits at a bank, or with short‐term government bonds held at a custodian. They’re issued only by nonbanks, although FINMA in Switzerland does allow Swiss banks to issue Swiss franc–denominated stablecoins. Usually stablecoins do not pay interest, and they are designed to trade at par with the fiat currency. Because they are issued on a blockchain, they usually settle in minutes, with irreversibility, and — critically — they are “programmable,” which means users can build their own software applications to interact with them.
- Topic:
- Monetary Policy, Banks, and Digital Currency
- Political Geography:
- Global Focus and United States of America
4. Should the State or the Market Provide Digital Currency?
- Author:
- Lawrence H. White
- Publication Date:
- 06-2021
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Private commercial banks have been providing trusted money to the public for hundreds of years, in the form of banknotes (where allowed) and transferable deposit balances, as an integral part of their business model. Economically, money balances are a private good: they are rival in consumption (you and I can’t both simultaneously spend a given banknote or deposit balance) and excludable in supply (you and your bank can stop me from spending the funds in your wallet or account) (White 1999: 89). Accordingly, the market does not inherently fail to provide money efficiently.
- Topic:
- Markets, Monetary Policy, Economy, State, Banks, and Digital Currency
- Political Geography:
- Global Focus
5. Technology Development of Digital Currency
- Author:
- Neha Narula
- Publication Date:
- 06-2021
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- We often spend a lot of time talking about the regulatory aspects of what a digital currency might look like, or the economic aspects. But if we take a look at the largest companies, the most influential on our ways of life, they’re tech companies. Technology is incredibly important and influences what we can do with policy and what kinds of functionality we can even enable. So, what I hope to tell you today is a little bit about how I’m seeing the technology development of digital currency.
- Topic:
- Development, Science and Technology, Monetary Policy, and Digital Currency
- Political Geography:
- Global Focus
6. Public and Private Money Can Coexist in the Digital Age
- Author:
- Tobias Adrian and Tommaso Mancini-Griffoli
- Publication Date:
- 06-2021
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- a card, waving a phone, or clicking a mouse. Or we might hand over notes and coins, though in many countries increasingly less often. Today’s world is characterized by a dual monetary system, involving privately issued money — by banks of all types, telecom companies, or specialized payment providers — built upon a foundation of publicly issued money — by central banks. While not perfect, this system offers significant advantages, including innovation and product diversity, mostly provided by the private sector, and stability and efficiency, ensured by the public sector. These objectives — innovation and diversity on the one hand, and stability and efficiency on the other — are related. More of one usually means less of the other. A tradeoff exists that countries — central banks especially — have to navigate. How much of the private sector to rely upon, versus how much to innovate themselves? Much depends on preferences, available technology, and the efficiency of regulation. So it is natural, when a new technology emerges, to ask how today’s dual monetary system will evolve. If digitalized cash — called central bank digital currency — does emerge, will it displace privately issued money or allow it to flourish? The first is always possible, by way of more stringent regulation. We argue that the second remains possible, by extending the logic of today’s dual monetary system. Importantly, central banks should not face a choice between either offering central bank digital currency, or encouraging the private sector to provide its own digital variant. The two can coincide and complement each other — to the extent central banks make certain design choices and refresh their regulatory frameworks.
- Topic:
- Monetary Policy, Banks, Money, Digital Policy, and Digital Currency
- Political Geography:
- Global Focus