Ulrich Bindseil, Patrick Papsdorf, Jürgen Schaaf, 07 January 2022

Bitcoin’s market capitalisation reached new peaks in November 2021. This column suggests it is hard to find arguments supporting the cryptocurrency’s current valuation. Even if the financial stability risks of a Bitcoin collapse could be contained, the burst of the bubble would imply painful losses for many retail investors and society at large. The authors conclude that public authorities should refrain from taking measures supporting additional investment flows into Bitcoin and should treat it as rigorously as the conventional financial industry to combat illicit payments, money laundering, and terrorist financing. 

Dirk Niepelt, 14 December 2021

The CEPR Research and Policy Network on FinTech and Digital Currencies has published an ebook on the design and implications of central bank digital currency. Dirk Niepelt, leader of the RPN, explains why the topic is on the minds of many central banks — and the issues on which economists agree and disagree.

Download the eBook:
Dirk Niepelt, Central Bank Digital Currency: Considerations, Projects, Outlook, CEPR, 2021

Dirk Niepelt, 24 November 2021

Central bank digital currency has become a major preoccupation of central bankers. In a new CEPR eBook, academics and policymakers review what we know about the economic, legal, and political implications, discuss current projects, and look ahead. While consensus on the ‘right’ CBDC choices remains elusive, common perspectives emerge. First, money, banking and payments are ripe for upheaval, with or without CBDC. Second, the key risk of CBDC is unlikely to be bank disintermediation – privacy, politics, and information may be more critical. Third, the use case for CBDC must be clarified country by country, and may not exist. Fourth, parliaments and voters should have the final say.

Emanuele Borgonovo, Stefano Caselli, Alessandra Cillo, Donato Masciandaro, Giovanni Rabitti, 28 October 2021

With the development of new forms of money such as cryptocurrencies and central bank digital currencies, the attention paid to their role as a store of privacy is increasing. This column asks whether privacy is relevant in shaping the demand for these currencies. The results of laboratory experiments show that anonymity does indeed matters and increases the overall appeal of a medium of payment. This effect is stronger for risk-prone individuals. 

Massimo Ferrari, Arnaud Mehl, Fabio Panetta, Ine Van Robays, 19 October 2021

Central banks around the world are weighing the pros and cons of issuing their own digital currency. This column identifies open research questions around the international macro-financial dimension of central bank digital currencies, including what is different about them, and what the implications for international central bank cooperation are. Addressing these questions would not only push the frontier of knowledge, it would also provide the conceptual backbone and evidence that could usefully inform future policy decisions on CBDCs. 

Michael Bordo, 19 October 2021

Monetary transformations through history have been driven by changing technology, changing tastes, economic growth, and the demands to effectively satisfy the functions of money. This column argues that technological change in money and finance is inevitable, driven by the financial incentives of a market economy, and identifies four key lessons central banks could learn from history to enable them to provide digital currency to effectively fulfil their public mandates.

Raphael Auer, David Tercero-Lucas, 06 October 2021

Some see cryptocurrencies as a potential substitute for fiat money and commercial banking, a new form of exchange resistant to debasement and censorship by governments and financial institutions. This column examines whether cryptocurrency investors are motivated by distrust in fiat currencies or regulated finance, and finds that investors show no differences from the general population in their level of security concerns about either cash or commercial banking services. Cryptocurrency investors tend to be educated and young and to be digital natives. In recent years, a gap in ownership of cryptocurrencies across genders has emerged.

Thorsten Beck, Yung Chul Park, 16 September 2021

The recent wave of financial innovation related to digitalisation has the potential to change the landscape of financial service providers quite dramatically, creating the need for a flexible regulatory framework that can accommodate these changes while safeguarding stability. This column introduces a new eBook that takes stock of financial digitalisation over the past decade and applies global lessons to the regulatory debates in Korea.

Jon Danielsson, 26 March 2021

What would the world look like if Bitcoin completely displaced fiat currency? Jon Danielsson tells Tim Phillips that it wouldn't be a society that he would like to live in. 

Jon Danielsson, 26 February 2021

As the price of bitcoin continues to rise, this column argues that most of us would not want to live in a society where bitcoin succeeds. Fortunately, the internal contradictions and perverse consequences of cryptocurrencies' success mean that they are destined for failure. Until then, it might make sense for speculators to ride the cryptocurrency bubble, so long as they get out in time.

Dirk Niepelt, 05 February 2021

The role of central bank digital currency is increasingly being discussed, both in terms of its utility in monetary policy as well as the controversy of bank-level profit from money creation. This column presents a method for quantifying the funding cost reduction enjoyed by banks, highlighting that money creation substantially contributes to profits. This raises important questions for policymakers to address as they seek to optimise the deployment of digital currencies within financial institutions.

Raphael Auer, Giulio Cornelli, Jon Frost, 28 October 2020

Central bank digital currencies are in the limelight. Yet the motives for issuance and, relatedly, the policy approaches and designs differ. This column surveys the drivers, policy approaches and technical designs, based on a comprehensive and publicly available database. It finds that all Central bank digital currency projects aim to complement cash rather than replace it. Many projects would allow for an important role of the private sector in the payment system.

Muhammad Cheema, Robert Faff, Kenneth Szulczyk, 25 July 2020

The COVID-19 pandemic has severely impacted the financial markets, which has triggered a flight from risky assets to safe haven assets. This column compares the performance of the safe havens across the world’s ten largest economies during COVID-19 and the 2008 Global Financial Crisis. The findings suggest that the character of safe haven assets has changed since the 2008 crisis. Gold, the traditional safe haven asset, has lost its glitter. However, the Swiss franc, the US dollar and US Treasuries retained their safe haven status, and Tether, a cryptocurrency, shows some promise.

Joshua Gans, Neil Gandal, 06 February 2020

Cryptocurrencies such as Bitcoin rely on a ‘proof of work’ scheme to allow nodes in the network to ‘agree’ to append a block of transactions to the blockchain, but this scheme requires real resources (a cost) from the node. This column examines an alternative consensus mechanism in the form of proof-of-stake protocols. It finds that an economically sustainable network will involve the same cost, regardless of whether it is proof of work or proof of stake. It also suggests that permissioned networks will not be able to economise on costs relative to permissionless networks.

Dirk Niepelt, 03 February 2020

Central banks already issue digital money, but only to a select group of financial institutions. Central bank digital currency would extend this to households and firms. This column examines the proposal for such currency and assesses the opportunities and risks. It argues that while preparations for the launch of Libra have not proceeded according to plan, it has become clear that for central banks, maintaining the status quo is not an option.

Pierpaolo Benigno, Linda Schilling, Harald Uhlig, 03 October 2019

The governor of the Bank of England, Mark Carney, recently argued that more thought should be given to creating a global electronic currency. This column, part of the Vox debate on the future of digital money, looks at the challenges for the world economy of adopting a ‘world wide currency’, using a two-country world in which each country has its own national currency and national central bank, but where there is also a global currency in circulation. It suggests that Carney’s wish may be granted, but sooner than expected and in a different manner.  

Tobias Adrian, Tommaso Mancini-Griffoli, 09 September 2019

New entrants are vying to occupy the space once used by paper bills. This column, part of the VoxEU debate on the future of digital money, proposes a simple framework to make sense of who is attempting to pry our wallets open. It argues that the adoption of new digital means of payment could be rapid and bring significant benefits to customers and society, but that the risks must be tackled with innovative approaches and heightened collaboration across borders and sectors. One approach is for central banks to engage in a public–private partnership with fintech firms to provide a safe, liquid, and digital alternative to cash: synthetic central bank digital currency.

Stephen Cecchetti, Antonio Fatás, 29 August 2019

The announcement of the launch of Libra, a private global cryptocurrency, has reignited the debate on the costs and benefits of digital forms of payments controlled by the private sector. This column introduces a new Vox debate on the future of digital money intended to foster a conversation among academics and policymakers about the costs and benefits of some of these innovations and future scenarios for digital money.

Siddharth Bhambhwani, Stefanos Delikouras, George Korniotis, 24 August 2019

We do not know which characteristics affect cryptocurrency prices, if any. The column argues that there are two fundamental factors that drive prices in the long run: the trustworthiness of the cryptocurrency’s blockchain and the adoption of the blockchain. Cryptocurrencies such as Bitcoin, Ethereum, and Monero are affected by these fundamentals. In some periods prices deviate, but eventually retrace the trend.

Lucrezia Reichlin, 31 July 2019

Lucrezia Reichlin looks to a future where new cryptocurrency technologies will be used for payment systems, but the money behind them will remain a monopoly of the central banks.

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