4 ms·

Eh, that just sounds like central bank going into retail business, nothing more. They'll upgrade their systems to match that of retail banks to manage retail cu

Eh, that just sounds like central bank going into retail business, nothing more. They'll upgrade their systems to match that of retail banks to manage retail customer money. I still don't see any actual innovation, just monopolization of lending industry. I don't understand your example about money self-destruction. What's the actual innovation that will make this possible and why it's not possible now?

hogFeast 5y ago
Central banks can only create high powered money. How high powered money gets intermediated into actual economic activity is probably one of the largest unknown factors in central banking/monetary policy. This would, in theory, remove that discussion. That being said, if you are familiar with the history of monetary policy across countries, there is already quite a significant spectrum of central banks adopting new approaches to this problem. And it is not particularly evident that removing banks from the equation improves outcomes (although this is one of those lessons that falls in the blind spot of certain popular ideologies today). Simply: when you talk about disintermediation of banks, you get into the discussion of whether central banks are able to make lending decisions better than banks. When this works, as in Japan pre-1991, it works very well...Japan post-1991 demonstrates that it doesn't always work well. Also, this would change the politics of monetary policy. Most monetary systems that disintermediate banks are usually one-party states with extremely high levels of centralization of economic authority (you also tend to see heavily monopolized banking sectors, the US is the polar opposite of this, although this may not apply in this case). I am 95% sure that if you attempt to do this in a democracy, you will Zimbabwe your currency quickly and trigger a move away from democracy (unf, this also falls into a blindspot of lots of people today...economics PHds don't learn this stuff). It is very hard to have stable politics when the winner of an election will gain the power to make their family/their associates/all political allies permanently wealthy. EDIT: because I cannot reply, if you are asking how this fails to change anything...read a monetary policy textbook. There is a deep lack of understanding about basic elements of the financial system here (as ever). This isn't a facetious comment...srs, read a book.
- shkkmo 5y ago
  I still fail to see how a new digital currency makes this easier compared to just modernizing the US payment infrastructure or letting the central bank provide retail banking services in our current currencies.
- inshadows 5y ago
  I didn't downvote you, but I haven't grokked your answer yet. Yep, I gotta read something about monetary policy. In any case, I gather that "new digital currency" in this context mean centralization of accounts. EDIT: Do I understand it correctly that under this new system, there would be no money multiplication or IOW no fraction reserve banking?
  - hogFeast 5y ago
    Yes, it does but through that centralization of accounts, you are fundamentally changing how monetary policy operates (again, the concept of high-powered money changes totally...we are talking about the most fundamental aspects of how monetary policy works). If you read about Positive Money, they have written a few books about how this works. A significant simplification is: our monetary policy would be more like Japan pre-1991...but it is more complex than this (the politics of this are also significantly more complex...no-one has written any books about this). But reading something like Mishkin is a better starting point. EDIT: there is no "money multiplier" in the real economy, that is a device used to teach undergraduates...when banks make a loan, they just credit your deposit account, the money doesn't come from anywhere, the bank needs no reserves (reserve requirements are used functionally in China, I don't believe they are functional in the US, and they haven't been a central policy instrument in monetary policy generally since the 60s)...so the central bank "outsources" money creation to private banks, the exact purpose of these proposals is to stop this outsourcing although the actual implementation will vary.
    - deleted 5y ago
      [deleted]
    - ArnoVW 5y ago

hogFeast 5y ago

Central banks can only create high powered money. How high powered money gets intermediated into actual economic activity is probably one of the largest unknown factors in central banking/monetary policy. This would, in theory, remove that discussion. That being said, if you are familiar with the history of monetary policy across countries, there is already quite a significant spectrum of central banks adopting new approaches to this problem. And it is not particularly evident that removing banks from the equation improves outcomes (although this is one of those lessons that falls in the blind spot of certain popular ideologies today). Simply: when you talk about disintermediation of banks, you get into the discussion of whether central banks are able to make lending decisions better than banks. When this works, as in Japan pre-1991, it works very well...Japan post-1991 demonstrates that it doesn't always work well. Also, this would change the politics of monetary policy. Most monetary systems that disintermediate banks are usually one-party states with extremely high levels of centralization of economic authority (you also tend to see heavily monopolized banking sectors, the US is the polar opposite of this, although this may not apply in this case). I am 95% sure that if you attempt to do this in a democracy, you will Zimbabwe your currency quickly and trigger a move away from democracy (unf, this also falls into a blindspot of lots of people today...economics PHds don't learn this stuff). It is very hard to have stable politics when the winner of an election will gain the power to make their family/their associates/all political allies permanently wealthy. EDIT: because I cannot reply, if you are asking how this fails to change anything...read a monetary policy textbook. There is a deep lack of understanding about basic elements of the financial system here (as ever). This isn't a facetious comment...srs, read a book.

shkkmo 5y ago
I still fail to see how a new digital currency makes this easier compared to just modernizing the US payment infrastructure or letting the central bank provide retail banking services in our current currencies.
inshadows 5y ago
I didn't downvote you, but I haven't grokked your answer yet. Yep, I gotta read something about monetary policy. In any case, I gather that "new digital currency" in this context mean centralization of accounts. EDIT: Do I understand it correctly that under this new system, there would be no money multiplication or IOW no fraction reserve banking?
- hogFeast 5y ago
  Yes, it does but through that centralization of accounts, you are fundamentally changing how monetary policy operates (again, the concept of high-powered money changes totally...we are talking about the most fundamental aspects of how monetary policy works). If you read about Positive Money, they have written a few books about how this works. A significant simplification is: our monetary policy would be more like Japan pre-1991...but it is more complex than this (the politics of this are also significantly more complex...no-one has written any books about this). But reading something like Mishkin is a better starting point. EDIT: there is no "money multiplier" in the real economy, that is a device used to teach undergraduates...when banks make a loan, they just credit your deposit account, the money doesn't come from anywhere, the bank needs no reserves (reserve requirements are used functionally in China, I don't believe they are functional in the US, and they haven't been a central policy instrument in monetary policy generally since the 60s)...so the central bank "outsources" money creation to private banks, the exact purpose of these proposals is to stop this outsourcing although the actual implementation will vary.
  - deleted 5y ago
    [deleted]
  - ArnoVW 5y ago