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Should the Central Bank Issue E-money?

Author

Listed:
  • Charles M. Kahn
  • Francisco Rivadeneyra
  • Tsz-Nga Wong

Abstract

Should a central bank take over the provision of e-money, a circulable electronic liability? We discuss how e-money technology changes the tradeoff between public and private provision, and the tradeoff between e-money and a central bank's existing liabilities like bank notes and reserves. The tradeoffs depend on i) the technological setup of the e-money system (as a token or an account; centralized or decentralized); ii) the potential improvement in the implementation and transmission of monetary policy; iii) the risks to safety and privacy from cyber attacks; and iv) the uncertain impact on banks’ efficiency and financial stability. The most compelling argument for central banks to issue e-money is to address competition problems in the banking sector.

Suggested Citation

  • Charles M. Kahn & Francisco Rivadeneyra & Tsz-Nga Wong, 2018. "Should the Central Bank Issue E-money?," Staff Working Papers 18-58, Bank of Canada.
  • Handle: RePEc:bca:bocawp:18-58
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    References listed on IDEAS

    as
    1. Mohammad Davoodalhosseini & Francisco Rivadeneyra, 2018. "A Policy Framework for E-Money: A Report on Bank of Canada Research," Discussion Papers 18-5, Bank of Canada.
    2. Ben Fung & Hanna Halaburda, 2016. "Central Bank Digital Currencies: A Framework for Assessing Why and How," Discussion Papers 16-22, Bank of Canada.
    3. Yiting Li & Guillaume Rocheteau & Pierre-Olivier Weill, 2012. "Liquidity and the Threat of Fraudulent Assets," Journal of Political Economy, University of Chicago Press, vol. 120(5), pages 000.
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    5. Ales, Laurence & Carapella, Francesca & Maziero, Pricila & Weber, Warren E., 2008. "A model of banknote discounts," Journal of Economic Theory, Elsevier, vol. 142(1), pages 5-27, September.
    6. Jonathan Chiu & Thorsten V. Koeppl, 2017. "The Economics Of Cryptocurrencies - Bitcoin And Beyond," Working Paper 1389, Economics Department, Queen's University.
    7. Aleksander Berentsen & Fabian Schar, 2018. "The Case for Central Bank Electronic Money and the Non-case for Central Bank Cryptocurrencies," Review, Federal Reserve Bank of St. Louis, vol. 100(2), pages 97-106.
    8. Elena Quercioli & Lones Smith, 2015. "The Economics of Counterfeiting," Econometrica, Econometric Society, vol. 83(3), pages 1211-1236, May.
    9. Nosal, Ed & Wallace, Neil, 2007. "A model of (the threat of) counterfeiting," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 994-1001, May.
    10. Ricardo Cavalcanti & Ed Nosal, 2011. "Counterfeiting as Private Money in Mechanism Design," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 625-636, October.
    11. Friedman, Benjamin M, 2000. "Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking," International Finance, Wiley Blackwell, vol. 3(2), pages 261-272, July.
    12. Jonathan Chiu & Tsz-Nga Wong, 2015. "On the Essentiality of E-Money," Staff Working Papers 15-43, Bank of Canada.
    13. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2012. "Information, Liquidity, Asset Prices, and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1209-1238.
    14. Ben Fung & Scott Hendry & Warren E. Weber, 2017. "Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies," Staff Working Papers 17-5, Bank of Canada.
    15. William Roberds, 1995. "Financial crises and the payments system: lessons from the National Banking Era," Economic Review, Federal Reserve Bank of Atlanta, vol. 80(Sep), pages 15-31.
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    17. James Chapman & Jonathan Chiu & Miguel Molico, 2013. "A Model of Tiered Settlement Networks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 327-347, March.
    18. Kang, Kee-Youn, 2017. "Counterfeiting, screening and government policy," Journal of Economic Theory, Elsevier, vol. 172(C), pages 26-54.
    19. Warren E. Weber, 2015. "Government and Private E-Money-Like Systems: Federal Reserve Notes and National Bank Notes," Staff Working Papers 15-18, Bank of Canada.
    20. Jonathan Chiu & Tsz-Nga Wong, 2014. "E-Money: Efficiency, Stability and Optimal Policy," Staff Working Papers 14-16, Bank of Canada.
    21. repec:mcb:jmoncb:v:45:y:2013:i::p:327-347 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Jonathan Chiu & Janet Hua Jiang & Seyed Mohammadreza Davoodalhosseini & Yu Zhu, 2019. "Central Bank Digital Currency and Banking," 2019 Meeting Papers 862, Society for Economic Dynamics.
    2. Emanuele Borgonovo & Stefano Caselli & Alessandra Cillo & Donato Masciandaro & Giovanno Rabitti, 2018. "Cryptocurrencies, central bank digital cash, traditional money: does privacy matter?," BAFFI CAREFIN Working Papers 1895, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    More about this item

    Keywords

    Bank notes; Digital Currencies; Financial services; Payment clearing and settlement systems;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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