The Monetary Turning Point: From Bank Money to Central Bank Digital Currency (CBDC)

198 Pages·2023·2.934 MB·English

by  Joseph Huber

Joseph Huber
The Monetary
Turning Point
From Bank Money to
Central Bank Digital
Currency (CBDC)
The Monetary Turning Point
Joseph Huber
The Monetary
Turning Point
From Bank Money to Central Bank Digital
Currency (CBDC)
Joseph Huber
Berlin, Berlin, Germany
ISBN 978-3-031-23956-4 ISBN 978-3-031-23957-1 (eBook)
https://doi.org/10.1007/978-3-031-23957-1
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Contents
1 Core Points for Introduction 1
2 Three-Tier Monetary System. Types of Money, Their
Creation and Circulation 9
2.1 Three-Tier Taxonomy of Money 9
2.2 Base Level: Central-Bank Money 9
2.3 Second Tier: Active and Deactivated Bank Money 15
2.4 Third Tier: New Money Surrogates (Money Market
Fund Shares, E-money, Stablecoins, Complementary
Currencies) 19
2.5 Base-Level Challengers: Uncovered and Unwarranted
Cryptocurrencies and Complementary Currencies 28
References 30
3 Dominant Money. The Bank Money Regime 33
3.1 Dominant Currency and Dominant Money 33
3.2 Bank Money as Dominant Money. Substantial Loss
of Monetary Control 35
3.3 Monetary Credit and Intermediary Credit. Payment
Processing and Financial Intermediation 40
3.4 The Hemispheres of Finance: GDP Finance
and Non-GDP Finance. Consumer Price Inflation
and Asset Inflation 43
3.5 Recurrent Financial Market Failure 48
References 50
v
vi CONTENTS
4 Monetary Sovereignty. Bank Money as Para-Sovereign
Fiat Money 55
References 60
5 Historical Turning Points in the Composition
of the Money Supply 63
5.1 Types of Money in Epochal Rise and Decline 63
5.2 1660s Until 1840s: Rising Tide of Unregulated Paper
Money, Incipient Decline in the Systemic Importance
of Sovereign Coin 65
5.3 1840s Until Around 1910: Rising Tide of National
Central-Bank Notes, Ebb Tide for Unregulated Paper
Money 68
5.4 Late Nineteenth Century Until Around 2010: Rising
Tide of Bank Money, Ebb Tide for Central-Bank Notes
and Reserves 70
5.5 Upcoming from the 2020s: Rising Tide of Digital
Tokens, in Particular CBDC 73
References 74
6 Today’s Recomposition of the Money Supply 77
6.1 The Future of Money is Digital 77
6.2 The Prospects of the Various Types of Money at a Glance 85
6.3 CBDC Begins Its Ascent 87
6.4 The Age of Bank Money Has Passed Its Peak 93
6.5 What Will Be of Central-Bank Reserves? 99
6.6 Cash—On Its Way to the Money Museum 100
6.7 The Outlook for Unbacked Cryptocurrencies 102
6.8 Stablecoins as Competitors to Be Taken Seriously 106
References 110
7 CBDC System Design Principles 117
7.1 What System Architecture for CBDC? 118
7.2 Objectives Pursued and Benefits Expected 120
7.3 Disintermediation, Substitution and the Competitive
Coexistence of CBDC and Bank Money 124
7.4 Implications for CBDC Design Principles 126
7.5 Bank Run—A Problem of Bank Money, Not of CBDC.
Further Implications for CBDC Design Principles 134
7.6 Putting CBDC into Circulation 138
CONTENTS vii
7.7 Coverage for Stablecoins and Other Third-Tier Money
Surrogates 141
References 146
8 Central Banks and Monetary Policy Under Conditions
of CBDC 151
8.1 Objectives of Monetary Policy. To Be or Not to Be
in Control of Money Creation, Inflation, Interest
Rates, Growth and Employment 151
8.2 Independence of Central Banks—Both
from the Government as Well as Banking
and Finance 158
8.3 Reference Variables and Instruments of Responsive
Monetary Policies 165
8.4 Monetary Financing, Neutralisation of National
Debt, Helicopter Money 168
8.5 Problems of Monetary Accounting 174
8.6 Beyond the False Identity of Money and Credit 179
References 185
Index 189
Abbreviations and Glossary
AI Artificial Intelligence
Bank money Bank-account balances in the form of sight deposits (aka
demand deposits, overnight deposits) as well as savings
and time deposits
BIS Bank for International Settlements
Cash equivalents Includes near-money such as certificates of deposit, as
well as short-term securities such as treasury bills, bank
acceptances, commercial paper, repos
CBDC Central Bank Digital Currency, digital central-bank
money
CC Complementary Currency
Central-bank money Money issued by central banks, in the form of notes,
reserves, and soon also CBDC. Coins are mostly still
treasury money, but circulated via the central banks, too
CPI Consumer price inflation
Digital Token Token money in the form of digitised currency units
DC Digital Currency
DCEP Digital Currency Electronic Payment System (China)
DeFi Decentralised Finance, generic term for peer-to-peer
financial services
DLT Distributed Ledger Technology, or decentral blockchain
technology
ECB European Central Bank
FASB Financial Accounting Standards Board
Forex Foreign exchange
GAAP Generally Accepted Accounting Principles
ix
x ABBREVIATIONSANDGLOSSARY
GDP Gross Domestic Product
IASB International Accounting Standards Board (EU and UK)
ICO Initial Coin Offering (cryptocurrencies)
ID Identity, e.g. referring to a money user’s identification
code
IFRS International Financial Reporting Standards
IMF International Monetary Fund
IPO Initial Public Offering (stocks)
IT Advanced Information and Telecommunications
Technology
MMF Money Market Fund
P2P Peer-to-peer (directly, without intermediation)
PSP Payment Service Provider
QE Quantitative Easing, meaning expansive policy of “loose
money”
QT Quantitative Tightening, meaning contractive policy of
“tight money”
Reserves Banks’ central-bank account balances, serving as the
means of payment in interbank cashless transactions
RTGS Real-Time Gross Settlement (central-bank payment
system)
TARGET Trans-European Automated Real-Time Gross Settlement
Express Transfer System (ECB payment system)
TIPS TARGET Instant Payment Settlement
TLTRO Targeted Longer-Term Refinancing Operations
tps Transactions per second
Twh Terawatt hour
List of Tables
Table 2.1 Three-tier taxonomy of money 10
Table 8.1 The currency register’s structure of accounts 182
xi