tag:blogger.com,1999:blog-6704573462403312459.post8159175309366699581..comments2024-03-29T02:53:03.321-04:00Comments on Moneyness: Critiquing the Carney critique of central bank digital currencyJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger26125tag:blogger.com,1999:blog-6704573462403312459.post-39183142039492239682018-09-16T05:22:10.921-04:002018-09-16T05:22:10.921-04:00"Changing from physical to digital cash won&#..."Changing from physical to digital cash won't have any effect on monetary policy" <br /><br />I do not think this is the case. E-cash could, if remunerated at or just below the policy rate, strengthen the transmission of monetary policy. <br /><br />Currently deposit rates are not that responsive to changes in the policy rate but in an e-cash world commercial banks would be competing with the rate provided on risk-free e-cash. Bank funding costs would be more immediately sensitive to changes in the policy rate. I think this is an important but often overlooked aspect of e-cash. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-4257705311072289522018-04-20T10:59:42.015-04:002018-04-20T10:59:42.015-04:00"The central bank simply pays out interest to..."The central bank simply pays out interest to each address."<br />On the one hand, the central bank needs a really up-to-date list of balances for that. Yet-uncleared transactions are also a murky question. Suppose I broadcast a transaction sending $1 to you, but either it wasn't included in a block by the time the CB paid interest; or it was included, just the CB didn't notice. In either case, I will get the interest on the dollar.<br /><br />On the other hand, good luck doing that with Monero. With ring signatures, you don't know when a transaction output (UTXO in blockchain jargon) is spent.<br /><br />You don't need to connect to users to pay interest, though. The users will come to you to collect their rewards just fine. And with electronic systems, most of the problems about lack of fungibility no longer impose calculation costs on humans, but on the cash register and/or in-card computers.<br />jpkoning.blogspot.hu/2018/01/paying-interest-on-cash.htmlBasil Martehttp://users.itk.ppke.hu/~marba1noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-42408922833533314332018-04-20T10:30:47.052-04:002018-04-20T10:30:47.052-04:00"How then, having severed the connection to t..."How then, having severed the connection to the central authority, would that authority impose changing interest rates on its new instrument?"<br /><br />Well if the CDBC is implemented with a blockchain, it's pretty easy. The central bank simply pays out interest to each address. But it's tougher if its a smart-card based system or some other system, as you hint, since it is not apparent how the central bank can connect to the users in order to make the payment. <br /><br />"Also, what doas that smorgasbord of services, which you claim the average bank client wishes to profit from, comprise?"<br /><br />The opportunity to ask the issuer to reverse a transaction, for one. Cash doesn't allow this; it is irreversible. Access to credit, overdrafts, etc. Other services include safety deposit boxes, foreign exchange, cheque cashing, and international payments. You can build up a credit rating with a bank, not with cash. <br /><br />"Would wages be paid in CBDC?"<br /><br />Sure.<br /><br />"Would private companies be forbidden to create / offer CBDC credit instruments? Could such a ban be implemented in your opinion?"<br /><br />Could private companies lend and borrow CBDC? Sure, why not. They're just dollars. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-13284842581312322162018-04-19T11:01:53.174-04:002018-04-19T11:01:53.174-04:00There are at least two points in the life of the a...There are at least two points in the life of the average bank note (and possibly many in between), in which anonymity is not given. That is when I withdraw it from the ATM or teller and my account is debited and again when I return it to the bank and my account is credited. I suppose, the same would have to be true for CBDC. Otherwise, how would people get hold of it?<br /><br />Assuming that that is true, I suppose your argument is that anything that happens in between such two points is anonymous to the extent that the CB or any other bank (what about your phone company?) has no means of tracing transactions and the current whereabouts of its own instrument. How then, having severed the connection to the central authority, would that authority impose changing interest rates on its new instrument? Or are you content with a permanent rate of 0?<br /><br />Also, what doas that smorgasbord of services, which you claim the average bank client wishes to profit from, comprise? Would wages be paid in CBDC? Would private companies be forbidden to create / offer CBDC credit instruments? Could such a ban be implemented in your opinion?Oliver Daveyhttps://www.blogger.com/profile/09960924207469377279noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-14183431440832140362018-04-18T16:50:31.681-04:002018-04-18T16:50:31.681-04:00eCurrency:
After looking at their page, I'm 99...eCurrency:<br />After looking at their page, I'm 99% sure they have "invented" the excess reserve held at the central bank by credit card and mobile money operators. As in, I'd be willing to bet 1:100 on that.<br /><br />Tibado:<br />I get a very strong impression it's a non-anonymous version of Chaumian cash. If the issuer chooses coin serial numbers, they only need to keep a file of coins in circulation, and can deterministically prevent coin number collisions. In Chaum's (anonymous) version, the issuer needs to keep an ever-growing file of coins returned from circulation. Furthermore, by pure bad luck, you the user can generate a random number that's already on the spent list, so when you try to spend your coin, it will be seen as invalid.<br /><br />I think it's a safe assumption that Tibado coins yield 0% nominal interest rate, so the interest rate spread could cover the company's expenses. They have a fee on cashing out, too, so I assume they can actually put most of their assets into fairly illiquid things. Unfortunately, that same fee means Tibado coins can (and often will) trade at some discount to face value (that does not exceed the cash-out fee).<br /><br />Hm... if they *do* do this, then depending on specifics, it might be possible to pull a Soros on them. When Tibado coins are trading close to par, short and redeem a massive amount. The issuer remains solvent, but runs out of liquidity, and may have to e.g. suspend conversion to cash. Tibado coins drop (they could well fall through the now-absent floor), allowing you to cover your short position with a profit. You do deterministically lose the redemption fee, though.Basil Martehttp://users.itk.ppke.hu/~marba1noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-13827978889349473492018-04-18T13:51:00.327-04:002018-04-18T13:51:00.327-04:00Us backing theorists wouldn't lose a moment of...Us backing theorists wouldn't lose a moment of sleep over Carney's critique. When ANY bank, central or private, issues any kind of currency (digital, paper, or otherwise), its assets move in step with its issue of currency, and the value of the currency is maintained. The most likely mistake for any bank to make in this department is failing to issue enough currency to create adequate liquidity.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-48982399279973909962018-04-18T12:03:21.335-04:002018-04-18T12:03:21.335-04:00Good point, Carolyn.Good point, Carolyn.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-64126035939124701372018-04-18T12:02:56.437-04:002018-04-18T12:02:56.437-04:00"...because I don't know of any other imm..."...because I don't know of any other immaterial AND distributed verification systems."<br /><br />What about Tibado and eCurrencyMint? Not saying they are, but it's a possibility. (Hard to tell since they don't go into detail on their technologies).<br /><br />https://www.ecurrency.net/<br />https://www.tibado.com/faqsJP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-70198019153932935642018-04-17T11:47:09.620-04:002018-04-17T11:47:09.620-04:00"Given that by digital you're talking abo..."Given that by digital you're talking about blockchains"<br />I'm only talking about blockchains because I don't know of any other immaterial AND distributed verification systems.<br /><br />-> Cash is material, with distributed clearing.<br />-> Prepaid debit cards have distributed clearing, but the cards and reading devices need to be centrally issued to prevent counterfeiting. Thus although they are digital, I class them as material, due to the uncopiable trusted hardware.<br />-> Credit cards are/could be immaterial, with central clearing. What I mean is that the card could, in principle, only contain an account number. It's not a bearer token---if you lose/break it, you don't lose your money---thus it's also mostly OK if you make a copy of your credit card. Both copies refer to the same account, so transactions involving one card decrease the balance available to the other card; no double spending is possible.<br />-> Chaum's cash is immaterial with central clearing/verification. Even if we stay in the system, when we do a transaction, we need to connect to the issuer. For instance, if I pay you $1, even if you don't intend to redeem it into physical cash, you need to connect to the issuer, have it verified that his signature is on the dollar, have that number entered on the "spent" list---and then you generate a new number, blind it, send it to him, which he will sign, then send it back to you, where you unblind it. If you don't do all this, then the number of the dollar I paid you will not be entered into the "spent" list, and I can double-spend it.<br />-> Blockchain is both immaterial and has distributed clearing/verification. As far as I know, currently it is unique in this combination of traits.<br /><br />Personally, I consider censorship resistance nice but not essential. After all, credit cards are the #1 medium of exchange despite this vulnerability. If shopkeepers could automatically surcharge different credit cards appropriately, a central bank deposit account+barebones credit card combination might fairly quickly become the predominant medium of exchange. This is not to say that either the central bank or private financial institutions couldn't simultaneously offer an anonymous, censorship resistant medium of exchange to those who are willing to pay slightly more for these services.<br /><br />Addendum: some altcoins kept anonymous validators, but replaced proof of work with proof of stake. IIRC these were the ones that got hit with long-range attacks.Basil Martehttp://users.itk.ppke.hu/~marba1noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-65404370517412190622018-04-17T00:10:25.491-04:002018-04-17T00:10:25.491-04:00"Still, I think my point about distributed ve..."Still, I think my point about distributed verification necessarily being costly stands."<br /><br />"Digital, censorship resistant, cheap---choose two."<br /><br />Given that by digital you're talking about blockchains, that makes a lot of sense. <br /><br />i.e. If you want censorship resistance, then anonymous validators are required, which means proof of work. But that's expensive. If the validators are pre-approved then the system gets less costly because proof of work isn't necessary, but then the validators are no longer anonymous and can be pressured by malicious actors to censor transactions.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-29055693260406628162018-04-16T16:16:23.329-04:002018-04-16T16:16:23.329-04:00From 1830 to 1850 private bank notes were by polic...From 1830 to 1850 private bank notes were by policy displaced by Bank of England notes. This was a clear case of CB currency displacing private currency. (i) it led to massive growth of deposits as an alternative private money. (ii) the way the Bank of England got its notes into circulation was to induce private banks to pay them out instead of private notes when they made loans. This meant that the Bank of England had to exchange the private loans (covered by an additional private bank guarantee) for Bank of England notes in order to supply the private banks.<br /><br />This lends support to your view that (i) it's very possible that a CBDC will not succeed in displacing private bank money, and (ii) if it does, what it does with the asset side of its balance sheet is crucial.<br /><br />Carolyn SissokoAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-21464577357977247792018-04-16T14:32:06.969-04:002018-04-16T14:32:06.969-04:00"Eternal tradeoff"
It brings to mind the..."Eternal tradeoff"<br />It brings to mind the efficient market hypothesis. :-) All payment systems must be expensive (or(?) centralized) enough that counterfeiting gives significantly worse returns to investment than normal economic activity.<br /><br />"Card-based systems like Octopus (in Hong Kong) or Mondex don't need to communicate with a central server--everything is handled on the chip."<br />Perhaps I should have said "immaterial", not "digital". In these systems, the card and its internal state are uncopiable in exactly the same way banknotes are uncopiable. If it were possible for a person to get one card with $100 on it, a second card with $1 on it, and they could copy the internal memory of card #1 to card #2, then they would have two, separate bearer tokens worth $100 each.<br /><br />With uncopiable internal state, this is a perfectly fine digital bearer system. With all of the drawbacks that implies, i.e. if the card is lost/stolen, the purchasing power stored on it is lost/stolen as well.<br /><br />Technology: yes, we shouldn't get stuck on only one. Still, I think my point about distributed verification necessarily being costly stands. In particular, some alternative cryptocurrencies attempted to make verification ("mining") computationally cheap---and they became exposed to what is known as a "long-range attack", where transaction history is (somewhat maliciously) recalculated from the genesis block up.Basil Martehttp://users.itk.ppke.hu/~marba1noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-84409406995681233142018-04-16T13:45:56.245-04:002018-04-16T13:45:56.245-04:00"But in either case I do not see why making c..."But in either case I do not see why making cash 100% electronic would make a huge difference to the ability of the CB to do its job. It still has to adjust the quantity of base money (cash plus reserves) to hit whatever target (inflation or whatever) it is aiming for."<br /><br />Hi Rob, I agree. Moving from physical to digital cash won't have any affect on monetary policy. <br /><br />"It also has to get the balance right between cash and reserves but that would seem easier to do with electronic money that can be created or destroyed without the need to physically print and distribute (or collect and burn_) actual bank notes"<br /><br />The public determines how much cash it wants and in what denominations, and the central bank has to sort of anticipate this demand. And you're right, with a CDBC the central bank's job is much easier since there are no note denominations and it can make the stuff on demand, rather than printing it up ahead of time.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-14185108357299791112018-04-16T13:38:30.395-04:002018-04-16T13:38:30.395-04:00As I pointed out to Ralph, the banking sector won&...As I pointed out to Ralph, the banking sector won't shrink. A smaller private lending sector will be offset by a large public lending sector. The worry is that that government credit assessors may not do as good a job as private ones. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-68051065364491726412018-04-16T13:35:44.883-04:002018-04-16T13:35:44.883-04:00Basil, you bring up an interesting idea that perha...Basil, you bring up an interesting idea that perhaps there is some sort of eternal tradeoff such that a digital cash system would be just as expensive to run as physical cash system. I'll have to give it some more thought. Meanwhile:<br /><br />"...all digital systems are actually account-keeping, and require some communication."<br /><br />I don't think that's necessarily the case. Card-based systems like Octopus (in Hong Kong) or Mondex don't need to communicate with a central server--everything is handled on the chip. <br /><br />"...is introduced by e.g. the blockchain. (It is obvious from this way of putting it that "central bank cryptocurrency" is mostly a contradiction in terms. Why trust it as a monetary policy authority, but not as a clearinghouse?) Unfortunately, this stops the system being cheap. "<br /><br />I avoided getting into the underlying tech on purpose in this post so as to focus the discussion on the final product. But you are certainly right that a blockchain would be an expensive way to run a digital cash system. I'm not beholden to any specific technology... whatever best replicates the features of cash at the cheapest cost while minimizing counterfeiting. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-9523038012564989292018-04-16T13:31:29.445-04:002018-04-16T13:31:29.445-04:00Certainly, you didn't say that the CB would do...Certainly, you didn't say that the CB would do retail lending. Indeed, in writing about deflationary effects, you implicitly assumed that the supply of consumer and small industrial loans would shrink. That is why interest rates would rise, causing a depression.<br /><br />It is in response to this assumption that I pointed out that the CB would loan to the banks. It is both its job to do under the circumstances (filling the banks' demand for base money, when pressed for liquidity), and the course of action that causes the least disruption to the economy.<br /><br />It is possible to imagine other scenarios. For instance, as people withdrew deposits, the central bank could provide commercial banks with base money not by lending, but by buying a large share of their assets. This is the scenario where the CB *does* engage in retail lending. The end result is that banks are wound up in an orderly manner, while the CB's balance sheet becomes filled with miscellaneous retail loans as assets. This is not entirely ahistorical, as for a long time e.g. the Bank of England had a significant share of its assets in commercial paper, and the discount rate was a significant policy lever. In this scenario, again the macroeconomic effects (interest rate changes) are not significant.<br /><br />To get interest rate changes, it would be necessary for the CB to first neglect its duty as the LOLR, and cause a liquidity shortage crisis. So soon after 2008, another financial crisis wouldn't be very welcome. And after the dust settles over the remains of banks, it would need to continue with a tight monetary policy, despite the recession. This makes a sustained increase in interest rates doubly unlikely.<br /><br />I must add that in the second (and third, after the dust settled) scenarios--if the CB doesn't take over retail lending--this might be provided by e.g. open-ended mutual funds. That would be a nice 100% system, 100% equity, in this case. By the nature of the liabilities, there is no mandatory maturity, thus runs are entirely prevented. Because there would be many funds with differently-valued shares, creation of high-grade liquidity ("money") and financing would become separate. (Of course, the very term "lending" implies some degree of liquidity provision. However, you couldn't buy groceries with fund shares, so they are "not money".)<br /><br />I'm not sure what you mean by the interest rate being lower than the free market rate.Basil Martehttp://users.itk.ppke.hu/~marba1noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-6086935205657172292018-04-16T13:20:40.282-04:002018-04-16T13:20:40.282-04:00"...I.e. there is at least initially a DEFLAT..."...I.e. there is at least initially a DEFLATIONARY or “demand reducing” effect. But that is very easily countered via standard stimulatory measures. In particular if stimulus simply takes the form of the state printing money and spending it (and/or cutting taxes), that stimulus costs nothing in real terms. So to that extent there is no problem."<br /><br />Ralph, I don't think critics are worried about a deflationary effect, since as you say the exit of banks can be counterbalanced elsewhere. Rather, it is potential for resource misallocation. If people are exiting deposits for CDBC, then the asset side of the central bank's balance sheet (i.e. the set of projects funded by the CB) will grow at the expense of the asset side of the commercial banking sector (the set of projects funded by the private sector). What sorts of projects will these much larger central banks choose to fund? Will they be politically motivated or profit motivated? Will they do a better job than commercial bankers in ensuring that credit quality stays high? All these are legitimate worries, I believe.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-90360608951738140262018-04-16T12:48:49.746-04:002018-04-16T12:48:49.746-04:00"To that extent, Carney’s “flee to in a bank ..."To that extent, Carney’s “flee to in a bank panic” point is irrelevant."<br /><br />Good point. I seem to recall NS&I accounts being capped?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-384672038880419902018-04-16T10:00:37.057-04:002018-04-16T10:00:37.057-04:00It does seem likely that if something happens that...It does seem likely that if something happens that takes away some of the disadvantages of holding cash (reduced storage and transportation costs etc) then in aggregate people will want to hold more of it. I suppose its also possible that some of these "disadvantages" are actually what people like about cash and if they were removed people would decide that they may as well as keep money in their bank accounts as in a electronic wallet.<br /><br />But in either case I do not see why making cash 100% electronic would make a huge difference to the ability of the CB to do its job. It still has to adjust the quantity of base money (cash plus reserves) to hit whatever target (inflation or whatever) it is aiming for. It also has to get the balance right between cash and reserves but that would seem easier to do with electronic money that can be created or destroyed without the need to physically print and distribute (or collect and burn_) actual bank notes.<br /><br /><br /><br /> Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-12152074362111589462018-04-16T07:19:12.989-04:002018-04-16T07:19:12.989-04:00I believe Carney is right to be worried about digi...I believe Carney is right to be worried about digital cash for his own reasons. It could well spell the end for money held in commercial banks,which would greatly reduce the size of commercial bank assets. <br /><br />However a reduced banking sector is no bad thing in my opinion and should be the objective here, not the contrary. We can thus ignore Carney's worries as he is currently mainly concerned in protecting the interests of commercial banks,as all central bankers do. This policy ignores what is actually beneficial to the wider economy/society ,which is what Carney and his ilk should be really focussing on.Vincehttps://www.blogger.com/profile/08057936746193286642noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-31277136487363838452018-04-16T05:19:47.226-04:002018-04-16T05:19:47.226-04:00I didn't mean to say, and far as I can see, I ...I didn't mean to say, and far as I can see, I didn't actually say that CBs would engage in retail lending. <br /><br />Re the idea that CBs could counter the rise in interest rates by lending to commercial banks, that's a possibility. Positive Money suggested that idea. However I don't favor that, because as I suggested above, a higher rate of interest would give us something nearer a genuine free market rate of interest, which ought to increase GDP despite the fact that life would be more difficult for borrowers.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-38164110111727262752018-04-15T15:28:42.517-04:002018-04-15T15:28:42.517-04:00I rather doubt that the central bank will engage i...I rather doubt that the central bank will engage in retail lending, even if its cash displaces retail deposits of commercial banks. The simplest solution to this situation is for the CB to act as the LOLR---except this time, this would not be temporary.<br /><br />As people draw down their deposits at commercial banks, and use them to buy cash, the central bank can buy large bonds from the commercial banks. The end result is a triangle trade:<br /> - People's assets change from bank deposits to cash.<br /> - Commercial banks' liabilities change from retail deposits to the bond block owned by the CB.<br /> - The CB grows its balance sheet, getting bank bonds as assets and cash as liability.<br /><br />Interest rates on retail loans wouldn't have to rise at all.Basil Martehttp://users.itk.ppke.hu/~marba1noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-19538892250773943532018-04-15T15:07:27.892-04:002018-04-15T15:07:27.892-04:00"Lastly, digital currency is cheap to create,..."Lastly, digital currency is cheap to create, requiring only a few keyboard strokes. Cash requires large printing machines, ink, and paper."<br />Digital, censorship resistant, cheap---choose two.<br /><br />Material cash works as a bearer token, because it cannot be copied without sci-fi technology (nanotech). Creating a convincing counterfeit is possible, but very difficult. A digital bearer token could just be copied; this is the problem of double spending. For this reason, all digital systems are actually account-keeping, and require some communication.<br /><br />The baseline systems do this centrally, but as a consequence, are not censorship resistant. Purely from a technical point of view, they could be pseudonymous (accounts are kept as acc. no.12345, we don't care whose account is that). But the central settlement authority can decide to refuse transactions coming from acc#12345.<br /><br />To get censorship resistance, distributed verification is introduced by e.g. the blockchain. (It is obvious from this way of putting it that "central bank cryptocurrency" is mostly a contradiction in terms. Why trust it as a monetary policy authority, but not as a clearinghouse?) Unfortunately, this stops the system being cheap. On the first level, when the validity of all transactions need to be checked not by only one central authority, but by many thousand participants, then the cost of transactions increases many thousandfold. On the second level---censorship resistance implies that the identity of participant account-keepers needs to be at least pseudonymous. This "everybody welcome" approach is necessary to prevent easy collusion and censorship. Unfortunately, at the same time it opens the possibility of a malicious participant messing up the account-keeping, e.g. settling invalid transactions, such as sending your money to themselves.<br /><br />This second level, preventing spurious transactions form being executed, is where the cost of the payment network really goes through the roof. The currently-known best system, blockchain, essentially sets a cost hurdle that malicious individuals cannot jump over, but the whole system can (and must). Proof of Waste. This is not very different from the elaborate printing of banknotes, that the cash system as a whole can afford to pay, but individual would-be counterfeiters cannot.Basil Martehttp://users.itk.ppke.hu/~marba1noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-83960257338981700682018-04-15T14:48:20.404-04:002018-04-15T14:48:20.404-04:00There’s another questionable aspect to Carney’s “d...There’s another questionable aspect to Carney’s “disintermediation” point, as follows.<br /><br />He is correct in a sense to say that “…a mass draining of deposits…..would affect the economy in a negative way” to quote from the above article. I.e. there is at least initially a DEFLATIONARY or “demand reducing” effect. But that is very easily countered via standard stimulatory measures. In particular if stimulus simply takes the form of the state printing money and spending it (and/or cutting taxes), that stimulus costs nothing in real terms. So to that extent there is no problem.<br /><br />However, interest rates would rise a bit because banks would have to fund more of their loans from shareholders, those with term accounts and others to whom banks pay more interest than they do to current account holders. So would that interest rate rise matter?<br /><br />Well first, it’s widely accepted nowadays that there’s an excessive amount of borrowing, lending and debt: one reason for thinking an interest rate rise is not a problem.<br /><br />But much more important is the fact that when commercial banks use instant access money to fund loans, they are in effect creating money out of thin air. (E.g. if a deposit of £X is loaned on, the lender has access to £X, as does the depositor: £X has been turned into £2X.)<br /><br />Now the advocates of full reserve banking (aka “Sovereign Money”) claim that the latter “money printing” by commercial banks amounts to a subsidy for those banks in much the same way as letting a backstreet counterfeiter produced fake £10 is a subsidy of the counterfeiter. Maurice Allais, the French Nobel laureate economist actually claimed that commercial banks were counterfeiters pure and simple.<br /><br />And since subsidies reduce GDP, it follows from the latter argument (assuming advocates of Sovereign Money are right) that a flight of instant access money from commercial banks to a central bank would actually increase GDP, contrary to Carney’s suggestions.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-993500354944232242018-04-15T12:24:11.467-04:002018-04-15T12:24:11.467-04:00I see little short term effect. Longer term, ther...I see little short term effect. Longer term, there may be a gradual shift away from banks if people become convinced their money is accessible, liquid, and secure without them, and other lenders are accessible, easy, and low cost, but it still seems banks would have an advantage in these, such as interest payment, cost of funds, security, lolr, and many other services it provides such as exchange, and they could provide wallet services associated with accounts, though it would diminish the connection between deposits and loans if accounts weren't remunerative enough or too costly just as they are today for some. Lordhttps://www.blogger.com/profile/06747994571555237739noreply@blogger.com