7 ms·

CB reserves currently play a central role in payment systems. If two parties need to settle a transaction but hold deposits at different banks, the payment requ

CB reserves currently play a central role in payment systems. If two parties need to settle a transaction but hold deposits at different banks, the payment requires a transfer of funds between the two banks. Banks net out such transfers and settle the residual amount using CB reserves as the medium of exchange. If households and firms were given access to CBcoin accounts at the CB, banks’ dominant role as providers of payment services would be called into question. As a risk-free, interest-bearing asset, CBcoin would be preferable to bank deposits (and even paper currency, presuming anonymity concerns were addressed), encouraging households and firms to convert their bank deposits into CBcoin deposits. In effect, retail payments (and securities transactions) would no longer have to be mediated by banks, as the funds would be transferred directly from one party’s CBcoin account to another’s. A disintermediated payment system could gradually replace the current centralised system and its associated credit and liquidity risks (see BIS (2003)). The main benefit to CBcoin account holders would be access to cheap and fast peer-to-peer transactions. This sounds like all of the benefits of a centralized currency -- most importantly, stability and regulation -- with all of the benefits of current decentralized currency endeavours (Bitcoin, etc.). Assuming anonymity concerns are addressed, as they highlight. The impact on the banking system, however, would indeed be substantial. Providing payment services is a significant source of revenue for banks.

mfairbank 10y ago
I mostly agree, but the first big concerns that come to my mind are to do with security and how mistakes are fixed. With my (private) bank, I feel confident that improper withdrawals can be reversed, not least because I've successfully achieved such a result in the past. But if one day I check my CBcoin balance and it's not correct? Do I complain directly to the central bank? It strikes me that competent dispute resolution is not something that can be built overnight (though I suppose it could be absorbed from the top private banks). Edit: grammar
- jackgavigan 10y ago
  > It strikes me that competent dispute resolution is not something that can be built overnight (though I suppose it could be absorbed from the top private banks). What do you mean by "absorbed from the top private banks"?
  - mfairbank 10y ago
    Well it's all a bit vague in my mind, but the idea was that if a central bank coin is introduced, and if it achieves widespread use and popularity such that it becomes the default demand deposit mechanism, that the central bank could purchase the dispute resolution units from the private banks that presumably no longer have a use for them. The systems and human capital expertise to perform the functions would still exist, but it would be a question of whether they would be willing to work in the public sector instead of the private, and if the public sector could effectively manage them such that their performance remains acceptable.
- celticninja 10y ago
  From the description it sounds as if charge backs would be entirely possible given the suggested centralization aspect of the coin. Dispute resolution is relatively simple solution, especially as many banks will no longer require that sort of service.
- celticninja 10y ago
  From the description it sounds as if charge backs would be entirely possible given the suggested centralization aspect of the coin. Dispute resolution is relatively simple solution, especially as many banks will no longer require that sort of service.
wmf 10y ago
"The benefits of current decentralized currency endeavours" are in the eye of the beholder; GBPcoin probably won't be good for buying drugs, it won't triple in value in one year, and it isn't deflationary Austrian money. But for normal payments I agree.
- ckastner 10y ago
  > GBPcoin probably won't be good for buying drugs If they solve the anonymity problem (such that they can replace paper currency, which can also be entirely anonymous), then I'd expect that you could buy anything you want with it. Subject to anti-money-laundering rules, of course, which usually apply to larger transactions. > it won't triple in value in one year That doesn't have much to do with the currency, but with the market, and volatility works both ways.
  - wmf 10y ago
    From their perspective, anonymity is the problem. Cash is only legal because it's grandfathered in. If cash was invented in 2009 it wouldn't be legal.
    - irln 10y ago
      I would also argue that the inability to impose negative interest rates on cash is an even bigger problem from their perspective than anonymity.
      - mfairbank 10y ago
        Eliminating physical cash is not necessary to impose negative interest rates, even quite steep ones. By modifying the exchange rate between physical cash and bank deposits, the economic incentive to hoard physical cash is removed, allowing the central bank to impose an interest rate of their choice while still allowing citizens the flexibility of using their preferred payment methods over short time horizons. This piece[0] produced by the International Monetary Fund delves into the details about the steps banks will take to implement the necessary changes. [0] http://www.imf.org/external/pubs/ft/wp/2015/wp15224.pdf http://www.imf.org/external/pubs/ft/wp/2015/wp15224.pdf
joe_the_user 10y ago
So the reason for central creating an institution which would end their present source of power would be what, in particular? Edit: Fractional reserve banking is generally seen as a good thing by many economists. Many believe this allows central banks to stimulate and throttle the economy, ending recessions and leveling off bubbles. Why would central banks do anything to undermine this?
- neffy 10y ago
  The claim made in the Economic Textbooks that the central bank controls the banking system is mostly incorrect - in fact most of the things you'll read in economic textbooks about the banking system are provably incorrect which is a large part of the issues with current economic theory - and with economists employed by central bank attempting to control the banking system. From an economics point of view, what they are essentially proposing is to modify the banking system so that it resembles their models. Their models are stylised, highly simplified, and have to be massively "callibrated" in order to match economic observations at all, and even then can only usually do so between financial crashes. (The part of economics that analyses business cycles hasn't discovered the Nyquist theorem yet.) The best guess at what would result of this, is all the problems of centralised control, and none of the advantages of the existing system. Another way to think about it is a bunch of complete maniacs being allowed to run experiments on the live production system without any testing. Although hopefully it won't come to that.
  - zubat 10y ago
    Virtual worlds already deal in this level of centralization. It's not unprecedented and economists have gotten great data from studying those. They have persistent, naturally occurring interactions with real world macroeconomies via item trading. Long story short, it's absolutely within reach to reorganize finance to resemble game design. That doesn't mean it's risk free - but success is possible and even likely with due diligence.
    - neffy 10y ago
      No virtual world has loans, or a banking system. But I would totally support creating one that does and letting economists loose on that.
nyolfen 10y ago
sounds like you should read up on Taler: https://taler.net/ https://taler.net/ (anonymity is a primarily utility for criminals/tax evaders) I don't expect central governments to jump ship primarily because of the arbitrary authority that tax auditing, among other powers, that it gives them, though
- al_chemist 10y ago
  > anonymity is a primarily utility for criminals/tax evaders And terrorist and child predators, right?

mfairbank 10y ago

I mostly agree, but the first big concerns that come to my mind are to do with security and how mistakes are fixed. With my (private) bank, I feel confident that improper withdrawals can be reversed, not least because I've successfully achieved such a result in the past. But if one day I check my CBcoin balance and it's not correct? Do I complain directly to the central bank? It strikes me that competent dispute resolution is not something that can be built overnight (though I suppose it could be absorbed from the top private banks). Edit: grammar

jackgavigan 10y ago
> It strikes me that competent dispute resolution is not something that can be built overnight (though I suppose it could be absorbed from the top private banks). What do you mean by "absorbed from the top private banks"?
- mfairbank 10y ago
  Well it's all a bit vague in my mind, but the idea was that if a central bank coin is introduced, and if it achieves widespread use and popularity such that it becomes the default demand deposit mechanism, that the central bank could purchase the dispute resolution units from the private banks that presumably no longer have a use for them. The systems and human capital expertise to perform the functions would still exist, but it would be a question of whether they would be willing to work in the public sector instead of the private, and if the public sector could effectively manage them such that their performance remains acceptable.
celticninja 10y ago
From the description it sounds as if charge backs would be entirely possible given the suggested centralization aspect of the coin. Dispute resolution is relatively simple solution, especially as many banks will no longer require that sort of service.
celticninja 10y ago
From the description it sounds as if charge backs would be entirely possible given the suggested centralization aspect of the coin. Dispute resolution is relatively simple solution, especially as many banks will no longer require that sort of service.

wmf 10y ago

"The benefits of current decentralized currency endeavours" are in the eye of the beholder; GBPcoin probably won't be good for buying drugs, it won't triple in value in one year, and it isn't deflationary Austrian money. But for normal payments I agree.

ckastner 10y ago
> GBPcoin probably won't be good for buying drugs If they solve the anonymity problem (such that they can replace paper currency, which can also be entirely anonymous), then I'd expect that you could buy anything you want with it. Subject to anti-money-laundering rules, of course, which usually apply to larger transactions. > it won't triple in value in one year That doesn't have much to do with the currency, but with the market, and volatility works both ways.
- wmf 10y ago
  From their perspective, anonymity is the problem. Cash is only legal because it's grandfathered in. If cash was invented in 2009 it wouldn't be legal.
  - irln 10y ago
    I would also argue that the inability to impose negative interest rates on cash is an even bigger problem from their perspective than anonymity.
    - mfairbank 10y ago
      Eliminating physical cash is not necessary to impose negative interest rates, even quite steep ones. By modifying the exchange rate between physical cash and bank deposits, the economic incentive to hoard physical cash is removed, allowing the central bank to impose an interest rate of their choice while still allowing citizens the flexibility of using their preferred payment methods over short time horizons. This piece[0] produced by the International Monetary Fund delves into the details about the steps banks will take to implement the necessary changes. [0] http://www.imf.org/external/pubs/ft/wp/2015/wp15224.pdf http://www.imf.org/external/pubs/ft/wp/2015/wp15224.pdf

joe_the_user 10y ago

So the reason for central creating an institution which would end their present source of power would be what, in particular? Edit: Fractional reserve banking is generally seen as a good thing by many economists. Many believe this allows central banks to stimulate and throttle the economy, ending recessions and leveling off bubbles. Why would central banks do anything to undermine this?

neffy 10y ago
The claim made in the Economic Textbooks that the central bank controls the banking system is mostly incorrect - in fact most of the things you'll read in economic textbooks about the banking system are provably incorrect which is a large part of the issues with current economic theory - and with economists employed by central bank attempting to control the banking system. From an economics point of view, what they are essentially proposing is to modify the banking system so that it resembles their models. Their models are stylised, highly simplified, and have to be massively "callibrated" in order to match economic observations at all, and even then can only usually do so between financial crashes. (The part of economics that analyses business cycles hasn't discovered the Nyquist theorem yet.) The best guess at what would result of this, is all the problems of centralised control, and none of the advantages of the existing system. Another way to think about it is a bunch of complete maniacs being allowed to run experiments on the live production system without any testing. Although hopefully it won't come to that.
- zubat 10y ago
  Virtual worlds already deal in this level of centralization. It's not unprecedented and economists have gotten great data from studying those. They have persistent, naturally occurring interactions with real world macroeconomies via item trading. Long story short, it's absolutely within reach to reorganize finance to resemble game design. That doesn't mean it's risk free - but success is possible and even likely with due diligence.
  - neffy 10y ago
    No virtual world has loans, or a banking system. But I would totally support creating one that does and letting economists loose on that.

nyolfen 10y ago

sounds like you should read up on Taler: https://taler.net/ https://taler.net/ (anonymity is a primarily utility for criminals/tax evaders) I don't expect central governments to jump ship primarily because of the arbitrary authority that tax auditing, among other powers, that it gives them, though

al_chemist 10y ago
> anonymity is a primarily utility for criminals/tax evaders And terrorist and child predators, right?