IDEAS home Printed from https://ideas.repec.org/p/lie/opaper/26.html
   My bibliography  Save this paper

Digital Currencies and Central Banking: A Sense of Déjà Vu

Author

Listed:
  • Sigitas Siaudinis

    () (Bank of Lithuania)

Abstract

This paper examines the implications of digital currencies – both private cryptocurrencies and central bank digital currencies (CBDCs) – for central banking. We discuss some déjà vu episodes from monetary history in order to obtain a clearer understanding the present and potential implications of these currencies. We find that not only the current limitations of private cryptocurrencies, but also their conceptual underpinnings, argue against their replacement of conventional money. The two main potential problems with broadly accessible (general purpose) CBDC are a digital run and an excessive involvement of a central bank in the funding of the real economy. Meanwhile, alternative reserve-backed accounts or tokens (an implicit CBDC known as Tobin’s alternative) would also be exposed to these problems, albeit in a less pronounced way. CBDC-related hopes for monetary policy to eliminate the effective lower bound constraint are found to be exaggerated, even in a cashless world. We argue that central banks’ response to the digitalisation trend should be an integrative solution which satisfies the public demand for a safe means of payment, safeguards private innovations, and ensures financial stability. We conclude that there is no observable form of CBDC that would serve as a best-choice central bank response in advanced economies. Such a response might be considered as a temporary solution (if any), however, in emerging economies with weak financial inclusion.

Suggested Citation

  • Sigitas Siaudinis, 2019. "Digital Currencies and Central Banking: A Sense of Déjà Vu," Bank of Lithuania Occasional Paper Series 26, Bank of Lithuania.
  • Handle: RePEc:lie:opaper:26
    as

    Download full text from publisher

    File URL: https://www.lb.lt/uploads/publications/docs/22608_3457e6b4dcd5faa511ce6aa75a30d93c.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Wilko Bolt & Maarten R.C. Van Oordt, 2020. "On the Value of Virtual Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(4), pages 835-862, June.
    2. Kumhof, Michael & Noone, Clare, 2018. "Central bank digital currencies - design principles and balance sheet implications," Bank of England working papers 725, Bank of England.
    3. Morten Linnemann Bech & Rodney Garratt, 2017. "Central bank cryptocurrencies," BIS Quarterly Review, Bank for International Settlements, September.
    4. Curzio Giannini, 2011. "The Age of Central Banks," Books, Edward Elgar Publishing, number 14371.
    5. Barrdear, John & Kumhof, Michael, 2016. "The macroeconomics of central bank issued digital currencies," Bank of England working papers 605, Bank of England.
    6. Pelin Berkmen & Kimberly Beaton & Dmitry Gershenson & Javier Arze del Granado & Kotaro Ishi & Marie Kim & Emanuel Kopp & Marina V Rousset, 2019. "Fintech in Latin America and the Caribbean: Stocktaking," IMF Working Papers 19/71, International Monetary Fund.
    7. Ruchir Agarwal & Miles Kimball, 2015. "Breaking Through the Zero Lower Bound," IMF Working Papers 15/224, International Monetary Fund.
    8. Nigel Dodd, 2014. "The Social Life of Money," Economics Books, Princeton University Press, edition 1, number 10319.
    9. Jon Frost & Leonardo Gambacorta & Yi Huang & Hyun Song Shin & Pablo Zbinden, 2019. "BigTech and the changing structure of financial intermediation," BIS Working Papers 779, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    private cryptocurrencies; central bank digital currency (CBDC); fintechs; financial stability; monetary policy;

    JEL classification:

    • 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
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lie:opaper:26. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Povilas Lastauskas). General contact details of provider: http://edirc.repec.org/data/lbanklt.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.