We propose a simple model of the international monetary system. We study the world supply and demand for reserve assets denominated in different currencies under a variety of scenarios: a hegemon ...versus a multipolar world; abundant versus scarce reserve assets; and a gold exchange standard versus a floating rate system. We rationalize the Triffin dilemma, which posits the fundamental instability of the system, as well as the common prediction regarding the natural and beneficial emergence of a multipolar world, the Nurkse warning that a multipolar world is more unstable than a hegemon world, and the Keynesian argument that a scarcity of reserve assets under a gold standard or at the zero lower bound is recessionary. Our analysis is both positive and normative.
Bitcoin: Economics, Technology, and Governance Böhme, Rainer; Christin, Nicolas; Edelman, Benjamin ...
The Journal of economic perspectives,
04/2015, Letnik:
29, Številka:
2
Journal Article
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Bitcoin is an online communication protocol that facilitates the use of a virtual currency, including electronic payments. Bitcoin's rules were designed by engineers with no apparent influence from ...lawyers or regulators. Bitcoin is built on a transaction log that is distributed across a network of participating computers. It includes mechanisms to reward honest participation, to bootstrap acceptance by early adopters, and to guard against concentrations of power. Bitcoin's design allows for irreversible transactions, a prescribed path of money creation over time, and a public transaction history. Anyone can create a Bitcoin account, without charge and without any centralized vetting procedure—or even a requirement to provide a real name. Collectively, these rules yield a system that is understood to be more flexible, more private, and less amenable to regulatory oversight than other forms of payment—though as we discuss, all these benefits face important limits. Bitcoin is of interest to economists as a virtual currency with potential to disrupt existing payment systems and perhaps even monetary systems. This article presents the platform's design principles and properties for a nontechnical audience; reviews its past, present, and future uses; and points out risks and regulatory issues as Bitcoin interacts with the conventional financial system and the real economy.
In this essay, we highlight the interactions of the international monetary system with financial conditions, not just with the output, inflation, and balance of payments goals usually discussed. We ...review how financial conditions and outright financial crises have posed difficulties for each of the main international monetary systems in the last 150 years or so: the gold standard, the interwar period, the Bretton Woods system, and the current system of floating exchange rates. We argue that even as the world economy has evolved and sentiments have shifted among widely different policy regimes, there remain three fundamental challenges for any international monetary and financial system: How should exchange rates between national currencies be determined? How can countries with balance of payments deficits reduce these without sharply contracting their economies and with minimal risk of possible negative spillovers abroad? How can the international system ensure that countries have access to an adequate supply of international liquidity—financial resources generally acceptable to foreigners in all circumstances? In concluding, we evaluate how the current international monetary system answers these questions.
•We examine the open-economy implications of the introduction of a central bank digital currency (CBDC).•We analyze the international transmission of standard monetary policy and technology shocks in ...the presence and absence of a CDBC.•The presence of a CBDC amplifies the international spill-overs of shocks to a significant extent.•The magnitude of these effects depends crucially on CBDC design•Domestic issuance of a CBDC increases asymmetries in the international monetary system.
A two-country DSGE model with central bank digital currency (CBDC) is derived and used to analyze the open-economy implications of CBDC for the transmission of shocks, optimal monetary policy and welfare. The presence of a CBDC amplifies the international spillovers of shocks and increases international linkages. The magnitude of the effects depends crucially on the design of CBDC. Moreover, issuance of a CBDC by one economy increases asymmetries in the international monetary system by reducing monetary policy autonomy and welfare in the other economy.
The Safe Assets Shortage Conundrum Caballero, Ricardo J.; Farhi, Emmanuel; Gourinchas, Pierre-Olivier
The Journal of economic perspectives,
07/2017, Letnik:
31, Številka:
3
Journal Article
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A safe asset is a simple debt instrument that is expected to preserve its value during adverse systemic events. The supply of safe assets, private and public, has historically been concentrated in a ...small number of advanced economies, most prominently the United States. Over the last few decades, with minor cyclical interruptions, the supply of safe assets has not kept up with global demand. The reason is straightforward: the collective growth rate of the advanced economies that produce safe assets has been lower than the world's growth rate, which has been driven disproportionately by the high growth rate of high-saving emerging economies such as China. The signature of this growing shortage is a steady increase in the price of safe assets; equivalently, global safe interest rates must decline, as has been the case since the 1980s. The early literature, brought to light by Ben Bernanke's famous “savings glut” speech of 2005, focused on a general shortage of assets without isolating its safe asset component. The distinction, however, has become increasingly important over time, particularly in the aftermath of the subprime mortgage crisis and its sequels. We begin by describing the main facts and macroeconomic implications of safe asset shortages. Faced with such a structural conundrum, what are the likely short- to medium-term escape valves? We analyze four of them, each with its own macroeconomic and financial trade-offs.
In this article, we investigate the dynamics of contestation and adaptation that are unfolding within global financial markets as China seeks to internationalize its currency, the renminbi (RMB) or ...yuan. We develop a conceptual framework that stresses the potential malleability of the global monetary system. Economic actors and international institutions are not static but dynamic and respond to events. Accordingly, we highlight two underexplored features of RMB internationalization: first, the variegated and politicized nature of capital account and currency management controls that China is implementing; and second, the manner in which these unique currency management systems are interacting with the ideational and institutional underpinnings of how transnational financial markets are generated and stabilized. Our analytical framework is then applied to examine the interface of China's onshore/offshore RMB markets. We argue that China is adopting a unique mode of monetary governance that reflects a different relationship between the state and market from that which we see in the West at present. Whilst the prospects of China 'muddling through' this internationalization process are uncertain, it remains possible that RMB internationalization will transform the global financial landscape in deeply qualitative as well as purely quantitative ways, ushering in an era of more illiberal state-managed monetary relations.
The international monetary system is marked by a hierarchical relationship between currencies, where the US dollar is widely used. Recently, central banks have started to launch Central Bank Digital ...Currencies (CBDCs), which, in contrast to cryptocurrencies, are issued by monetary authorities. The purpose of this paper is (i) to analyse and explain domestic retail CBDCs in detail, and (ii) to assess whether the creation of CBDCs poses a threat to the US dollar as the key currency of the international monetary and financial system. It will be argued that, despite the innovations a CBDC may bring, the role of the US dollar will not be affected by the introduction of multiple CBDCs (mCBDCs) alone. Although mCBDC arrangements might decentralise the international payment system, the underlying structures supporting today's unipolar system would not automatically change. It is crucial that central banks work together to establish an alternative international monetary system.
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•The international monetary system is highly dependent on the US dollar.•Cryptocurrencies fail to perform the functions of money.•CBDC alone does not pose a threat to the leading role of the US dollar.•CBDC may help central banks to establish an alternative cross-border payment system.
Using a sample of 27 currencies, we empirically test the role of a large set of determinants potentially underlying currencies' share in the international currency system, providing, to the best of ...our knowledge, the most comprehensive study of this kind so far. We propose a new global indicator that quantifies the international use of currencies on the basis of three dimensions—medium of exchange, unit of account and store of value. From a range of indicators including openness, financial development and institutional development indicators, we uncover several variables that are significant in explaining the international status of currencies, hence contributing to understanding the role of the determinants shaping the international currency system. We also investigate the long‐run equilibrium values for currency shares, allowing us to score currencies on the basis of the potential stemming from the determinants. We contribute to the debate on international currencies' prospects, not only by looking at much discussed currencies such as the US dollar, the euro and the Chinese renminbi, but also by uncovering potential of emerging currencies. This knowledge is of the utmost importance for the debate on the reform of the international monetary system—from the point of view of academics, policymakers and market practitioners.
We use the bibliometric and content analysis of 174 documents retrieved from the Scopus database to present the publication trends in Central Bank Digital Currencies (CBDCs) since 2018 and highlight ...the top publishing source with the most contributing authors in their affiliated countries. While showing influential studies, important themes covered to date, and the intellectual structure of the CBDC literature, we present recent research trends, gaps, and future research agendas in this domain. Research curiosity on the systematical framework, significance, and structural implication of CBDC as a structural shift in the digitization of the monetary system are major propellants. CBDCs have far-reaching implications for monetary and payment systems, and their development could pave the way for a global common currency. Researchers are making significant efforts to investigate how CBDCs are linked to international trade and assets, particularly cryptocurrencies. There is much room for theoretical development, contextual coverage, and methodology contributions.
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•Literature on CBDCs is significantly growing.•We conducted a bibliometric and content analysis of 174 publications.•We list influential studies, important themes and the structure of CBDC literature•CBDCs have far-reaching implications for monetary and payment systems.•The development of CBDCs could pave the way for a global common currency.•We provide a network of themes and suggest future research agendas.
Investigations into the process by which cross-border payments are completed within the international monetary system remain largely unresolved. By exploring how these payments are executed through a ...flow of funds representation as per Institutional Practice-the operations of both the Central Bank and commercial banks within the payment and settlement system-this paper will (1) demonstrate that domestic monetary policy implementation entails the Central Bank offsetting all autonomous reserve flows to maintain an overnight policy rate; (2) show why global imbalances occur and persist across the international monetary system; and (3) outline the impact of involuntary constraints on policymaking.
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