The Case for Central Bank Electronic Money and the Non-case for Central Bank Cryptocurrencies
Aleksander Berentsen
"Bitcoin, Blockchain, and Cryptoassets: A Comprehensive Introduction" published by MIT Press
by Aleksander Berentsen and Fabian Schar, Center for Innovative Finance, University of Basel
Download .... Central Bank Cryptocurrencies
Abstract: We characterize various currencies according to their control structure, focusing on cryptocurrencies such as Bitcoin and government-issued fiat money. We then argue that there is a large unmet demand for a liquid asset that allows households and firms to save outside of the private financial sector. Central banks could offer such an asset by simply allowing households and firms to open accounts with them. Finally, we conclude that a central bank will not issue cryptocurrencies in the sense of a truly decentralized and permissionless asset that allows users to remain anonymous.
Bitcoin links several technological components together in such a way that the units of value are issued under competition and have both a virtual representation and a decentralized transaction process. In this way, the Bitcoin system has created money that is substantially different from any other money—such as commodity money, cash, or electronic money.
To understand why Bitcoin is unique, it is useful to characterize money according to its control structure. There are three dimensions. The first dimension is representation. Money can be represented in virtual form or physical form. The second dimension is transaction handling. Money can be transacted in centralized or decentralized payment systems. Finally, the third dimension is money creation. Some monies are created by a monopoly, while others are issued under competition.
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Portfolio Manager Fixed Income bei Loyal Finance AG
6yLiquidity insurance is an important function of a bank. The depositors remain liquid while they invest long term. Money and credit are inseparable linked over the balance sheets of banks. The purpose of central banks is to reinsure the liquidity of banks. When central banks take deposits they become a bank. In this case all banks should be allowed to issue their money.
Portfolio Manager Fixed Income bei Loyal Finance AG
6yIt is doubtful that there is a need for public electronic money from central banks. What would be the advantage of having a banking account with a central bank? In times of stress it is more likely that the government takes your money! And do you want to know the state about your transactions?