Central Bank Digital Currency

Central Bank Digital Currency
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Ulrich Bindseil discusses the implications and control of the central bank digital currencies (CBDC) on the financial system.

Ulrich Bindseil: Central Bank Digital Currency – Financial System Implications And Control

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Thank you very much Mr.. We will thank you for inviting me and allowing me to speak about this topic which is an interesting one. So I have some slides with me.

So the topic is central bank digital currency financial system implications and control and maybe the to to make the question maybe more relevant or interesting. I mean this is a conference on 20 year of the euro or so. So and one session I think was called at some stage the next 20 years. So we have CBDC in 2039. That may be the concrete question and. I don't give the answer but I have over I have more arguments let's say added to the side that it could be then arguments against CBDC.

So. Let me go. Yeah. Mr. Peabody said so already. I'm talking maybe about one type of central bank digital currency. I think that broadly what I would say would also apply to others but I'm not discussing really technology here I assume and then don't you. Try to generalize that we talk here about conventional deposit money offered to everyone who wants to have an account with the central bank. I don't talk about token money about non central ledger. Forms of central bank digital currency. Assume that we just have deposit accounts opened to everyone as that is a cut. Quite I would say standard technological solution you just need to increase the number of accounts that you offer from a few thousand to a few hundred million. So the scaling is not trivial Of course. But otherwise technologically it's not a revolution it's very conventional technology. And the main point may be let me present it here through this slide which hopefully you can read. But I mean if you look at if you go to the literature on central bank digital currencies you could say there are three big views and they go into very different directions. The first one you could call it the idealistic view or you could say if you want to be negative you could say the fantastic view partially you know on central bank digital currency and the first one would be the one linked to sovereign money you know and Sovereign Money is not an irrelevant idea. We had last year in June the referendum on folk gate in Switzerland which was rejected with 75 percent but is some people believe Sovereign Money is the right answer to financial stability and other problems.

So central bank digital currency is viewed as a natural way to achieve sovereign money. Second some people and those are as an example Ken Rogoff maybe believe that central bank digital currency is a way to overcome the euro lower bound problem. So if you discontinue bank notes or bigger denominations you can also overcome the problem that bank notes put as your lower bound to monetary policy than some people say some macroeconomists say you can enrich the macroeconomic monetary policy toolkit if you have central bank digital currency because you can put an independent interest rate on that form of monetary liabilities. Second type of use is a fear for what I call your fear for conservative views. And the first two points I would say are mainstream concerns of central bankers no. So OK more or less radically formulated but there is a concern that if central bank digital currency is a super success. It could really crowd out structurally the banking system and you know let the central bank balance sheet inflate compared. I mean at the expense of the commercial banking system. And that would unavoidably lead to a centralisation of credit allocation in the central bank. Second variant is that it would undermine stability. So not a structural disintermediation. But if you want to call it this way it is cyclic disintermediation. That if there is a systemic banking crisis or the deposits will flow into the central bank and with so CBDC it facilitates.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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