Central Bank-Issued Digital Currency: Assessing Central Bank Perspectives of DLT and Implications for Fiat Currency and Policy Stimulus

by John Dwyer, October 11, 2016
Global, EMEA

Abstract

Celent has released a new report titled Central Bank-Issued Digital Currency: Assessing Central Bank Perspectives of DLT and Implications for Fiat Currency and Policy Stimulus. The report was written by John Dwyer, senior analyst in Celent’s Securities & Investments practice.

On 28 September 2016, the Financial Services Committee met with Federal Reserve Chair Janet Yellen at the Semi-Annual Testimony on the Federal Reserve’s Supervision and Regulation of the Financial System. Yellen informed the committee members that blockchain could have very significant implications for the payments system, and innovation using these technologies could be extremely helpful and bring benefits to society.

This is further evidence of the significant and growing interest of central banks in blockchain / distributed ledger technology (DLT), but what is much less understood is how such technology could transform the role of central banks and commercial banks.

“Central bank-issued digital currencies present an opportunity to re-architect the financial system to achieve key central bank objectives. The perceived benefits include a new payments system, granular data on key macroeconomic variables, expansion of the policy stimulus toolkit, and improved prudential regulation. Given the prevalence of unorthodox monetary policies and their influence on banking and capital markets, understanding the perspectives of the central bank constituency is critical to understanding the potential impact of DLT upon the financial system,” says Dwyer.

This is the second in a series of three reports on distributed ledger technology. The final report will compare fiat currency, Micro Gold, and cryptocurrencies as competition for payments systems, storing value, and money itself continues to unfold.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

3

Introduction

4

Central Banks’ Policy Focus

5

 

The Monetary Base

5

 

Broad Monetary Aggregates

6

 

Velocity of Money

7

 

Negative Nominal Interest Rates

8

The Mindset of Central Banks

10

 

Summary So Far

10

Overcoming the Zero Bound on Interest Policy

11

Deflation: Making Sure “It” Doesn’t Happen Here

12

The Chicago Plan Revisited

13

The Central Bank Battle Plan

14

 

The War on Deflation

14

 

The Five Priorities of Central Banks

15

A War on Cash

17

Inject Stimulus Directly into the Economy

18

 

Helicopter Money (aka “QE4 People”)

18

 

Broadening Access to the Central Bank Balance Sheet

18

 

Central Bank-Issued Digital Currency

19

 

Too Big To Fail (TBTF)

20

 

Interplay Between CBDC and Deposits

22

 

Programmable Currency

22

 

Targeting Monetary and Fiscal Policy

22

 

Melting Money

23

 

Fiat Currency End Game

23

Jackson Action

24

Concluding Remarks

26

Leveraging Celent’s Expertise

27

 

Was This Report Useful to You?

27

 

Custom Analysis and Research

27

 

Support for Financial Institutions

27

 

Support for Vendors

27

Related Celent Research

28

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