Central banks and decentralization - my current work in progress

Source: Christina via Unsplash

Dear all Bulbers :) 

I have written a policy paper for African Institute for Decentralised Finance and Blockchain (AIDBLOCK) regarding cryptocurrencies and international financial institutions such as the IMF, BiS, and G20. 

At the moment, I am in the process of finalizing a new paper focusing on crypto and public monetary policies regarding central banks, governments, and CBDCs. 

In "Monetary policy implications of digital currencies," Katrin Assenmacher from the ECB writes about the potential consequences of digital currencies on central banks and their ability to conduct monetary policy. The paper focuses on the perceived challenges and opportunities presented by digital currencies, examining the implications of CBDCs on monetary policy and financial stability and the potential effects of private digital currencies, such as Bitcoin, on central banks' ability to maintain price stability and control the money supply.

Among other things, Assenmacher highlights the key features of digital currencies, such as decentralization, limited supply, and peer-to-peer transactions. One of the key points in the paper is the potential shift in the demand for central bank money if digital currencies become widely adopted. This could lead to a decline in the use of traditional currencies and have significant implications for the conduct of monetary policy. The author explores various scenarios for adopting digital currencies, including partial adoption, where digital currencies coexist with traditional currencies, and full adoption, where digital currencies replace entirely traditional currencies. In the context of CBDCs, Assenmacher discusses how their introduction could affect monetary policy transmission and financial stability.

The paper notes that CBDCs could provide central banks with additional tools for implementing monetary policy, such as negative interest rates or targeted credit policies. However, the widespread adoption of CBDCs could also pose risks to financial stability, as it might lead to the disintermediation of banks and an increased likelihood of bank runs. Also, the paper examines private digital currencies' potential challenges to central banks in maintaining price stability and controlling the money supply. Assenmacher argues that the decentralized nature of cryptocurrencies like Bitcoin could make it more difficult for central banks to implement effective monetary policy, as these currencies operate outside the traditional banking system. The paper also considers the possibility of central banks losing their ability to act as a lender of last resort if private digital currencies become dominant.


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