tag:blogger.com,1999:blog-6704573462403312459.post8845913782085232750..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: Electronic money will only save central banks from subjugation if it is anonymousJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-6704573462403312459.post-28978022622102982332017-12-20T10:52:07.596-05:002017-12-20T10:52:07.596-05:00Interesting, didn't know long term bond rates ...Interesting, didn't know long term bond rates had fallen so low. <br /><br />Look, as I said in my post, interest rates are one important explanation for shrinking seigniorage. But the fact remains that the base over which the Riksbank collects seigniorage has shrunk in half over the last 9 years and will only decline further. Even if Swedish interest rates were to slowly recover over the next few years, past levels of seigniorage will never be reattained, nor is there a guarantee that the rising interest rate effect will keep up with the declining cash outstanding effect. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-71021677697128519282017-12-20T01:12:14.532-05:002017-12-20T01:12:14.532-05:00Well, I went and looked and the trend is the same ...Well, I went and looked and the trend is the same :<br />Long-Term Government Bond Yields: 2 to 9 -Year for Sweden, Percent, Annual, Not Seasonally Adjusted<br /><br />2006 3,52<br />2007 4,15<br />2008 3,76<br />2009 2,50<br />2010 2,29<br />2011 2,31<br />2012 1,14<br />2013 1,56<br />2014 0,92<br />2015 0,15<br />2016 -0,22<br /><br />So the point remains valid. The drop in seignorage income seems to be driven by the falling interest rates, much more than by the slower decline in the use of cash.<br /><br />George J. GeorganasAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-56786012713595432292017-12-19T15:00:32.244-05:002017-12-19T15:00:32.244-05:00"It would seem that "the power to say no..."It would seem that "the power to say no to your boss", as presented in the OP is a function of two things multiplied by one another : The amount of cash issued and the interest rate earned on that amount."<br /><br />Agreed.<br /><br />As for the interest rates you provide, you're better off looking at Swedish 5-year rates, since the average asset the Riksbank holds will have a maturity of ~5 years. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-57885967636654394262017-12-19T14:56:30.216-05:002017-12-19T14:56:30.216-05:00"All banks would therefore need to have highe..."All banks would therefore need to have higher balances to facilitate making the same volume of payments as are made now. "<br /><br />Pete, I think you are right that banks would need higher balances. But this extra amount would be small. Canada is interesting because we don't have reserve requirements. The banks only hold $500 million in overnight balances at the Bank of Canada to support something like $750 billion in Canadian dollar chequing deposits outstanding. So even if cash completely disappeared--so that $90 billion gets added on to the $750 billion in chequing deposits to make $840 billion--banks would only need maybe an extra $50 million in overnight balances on which seignorage could be earned. Which isn't much.<br /><br />You make some interesting points on the tradeoff between intraday lending and government bonds. Central bankers could definitely get some extra seigniorage by offering less generous terms on these facilities. I've always been surprised how cheap intraday loans are, especially the Fed's. But perhaps that is the true cost? JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-74240338442599121132017-12-19T06:06:23.442-05:002017-12-19T06:06:23.442-05:00J P - thank you for the reply. I think you may be ...J P - thank you for the reply. I think you may be correct, but it depends on how banks respond to the cashless system. In a counterfactual where people were using less cash and more commercial bank money to make their payments, demand for central bank money would necessarily increase. If I have an account in bank A and wish to pay your account at bank B, the payment is ultimately made between those banks' reserves accounts at the central bank. All banks would therefore need to have higher balances to facilitate making the same volume of payments as are made now. Netting and intra-bank payments may mean that the increase in balances may not be one-for-one with the reduction in the amount of cash, but nonetheless the picture may not be as stark as the one you paint, and reserves requirements may not be needed.<br /><br />But there is an alternative available to banks. They can use government securities to obtain intraday liquidity from the central bank to finance payments, rather than keep money there overnight. (This suggests that the true amount of money used to facilitate payments is somewhat larger than the numbers you cite.) Suppose that, in a cashless future, banks chose to facilitate their payments by increasing holdings of govvies rather than reserves balances. Then the seigniorage would accrue to the government (in the form of lower borrowing rates) rather than to the central bank. Central banks could recapture their FO money - and reduce counterparty risk on their own balance sheets - by offering less generous terms on this intraday borrowing relative to reserves accounts. But then that starts to look a little more like a tax, so that would tend to reinforce the point that you make in your article. Pete Zhttps://sites.google.com/view/peter-zimmerman/noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-9897690714556126922017-12-19T00:25:01.217-05:002017-12-19T00:25:01.217-05:00It would seem that "the power to say no to yo...It would seem that "the power to say no to your boss", as presented in the OP is a function of two things multiplied by one another : The amount of cash issued and the interest rate earned on that amount. Looking at interest rates one is strongly inclined to think that is is they, rather than the amount of cash outstanding that stand behind the decline in the power to say no to the boss :<br />2006 2,33<br />2007 3,55<br />2008 3,91<br />2009 0,40<br />2010 0,50<br />2011 1,66<br />2012 1,25<br />2013 0,93<br />2014 0,42<br />2015 -0,29<br />2016 -0,66<br /><br />The figures are from FRED/St.Louis FED and are 3-Month or 90-day Rates and Yields: Interbank Rates for Sweden, Percent, Annual, Not Seasonally Adjusted<br /><br />George J. Georganas<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-25620214498374200842017-12-16T11:18:57.013-05:002017-12-16T11:18:57.013-05:00"The commercial banks themselves have reserve..."The commercial banks themselves have reserves accounts at the central bank. Currently, most central banks pay interest on their reserves at policy rate minus a haircut. This haircut could simply be increased. "<br /><br />So yes, a central bank earns seigniorage on the difference between the interest rate that it pays to bank that hold central bank settlement balances and the market rate of interest (i.e. the overnight rate). But the quantity of overnight settlement balances is usually a tiny amount, so not enough to collect large amounts of seigniorage. For instance, in Canada the commercial banks only keep $500 million in overnight settlement balances at the BoC vs the $80 billion in banknotes outstanding. So if the BoC increases what you refer to as the haircut (ie reduces the rate it pays on settlement balances), this would have a negligible effect on seigniorage since the base of overnight balances on which it collects seignorage is so small. (Even if households turned in all their cash and used only bank money to transact, that base of settlement balances would remain minuscule.)<br /><br />To really get a large effect what the central bank needs to do is introduce a reserve requirement for commercial banks, and pay 0% on those reserves. This would widen both the base on which the central bank collects seigniorage and the size of the per dollar toll it can collect.<br /><br />The nice thing about collecting seigniorage from cash, either physical or electronic, is that the central bank is providing a service that people actually want. A reserve requirement that yields 0% isn't a service, it's a tax. <br /><br />But in principle you're right--there are other ways to increase seigniorage than introducing an eKrona. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-87860822050906247082017-12-16T05:58:26.757-05:002017-12-16T05:58:26.757-05:00Since losing seigniorage is the problem, can't...Since losing seigniorage is the problem, can't central banks restock their FO money by simply increasing the spread between the rates at which they lend and borrow? If households hold less cash in the future then, in the absence of an eKrona, they will hold more commercial bank money. The commercial banks themselves have reserves accounts at the central bank. Currently, most central banks pay interest on their reserves at policy rate minus a haircut. This haircut could simply be increased. No need for cash or eKrona. Obviously in a world of low interest rates there is a zero lower bound problem, but that is true of all of these methods of payment. Pete Zhttps://sites.google.com/view/peter-zimmerman/noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-55947197149804705892017-12-15T16:20:03.634-05:002017-12-15T16:20:03.634-05:00We have digital banknotes in the dark pools.
Dar...We have digital banknotes in the dark pools. <br /><br />Dark pools form when a collection of brokers decide to make a private exchange by pooling. They create a trusted brokerage within which money is always cash, everything becomes a cash for securities, on the spot trade. These dark pools can even create money, run a fractional reserve, if members choose. But there is a check in and out process that takes you in and out of regulated banking. Treat a hedge fund shares as internally traded cash, we get a similar result.Matt Younghttps://www.blogger.com/profile/08404998406161097199noreply@blogger.com