[LINK] Central Bank Digital Currency (CBDC)

[gerard]

I think that the point is that money as we know it is NOT simple.

Where we get our money is quite complex. How money works is explained 
nicely

in the following paper whose descriptions are based in knowledge of the 
banking

system and a degree of empirical evidence.

https://www.tandfonline.com/doi/abs/10.1080/00213624.2000.11506296
"Do Taxes and Bonds Finance Government Spending?"
Stephanie Bell

A government spends by writing cheques on its account at the central bank.

Needless to say this 'cheque writing' is digital. Literally some 
official from treasury

uses  a spreadsheet to type in a number corresponding to the cheque that 
then

appears as reserves at the central bank. That number may be huge for 
example  if it

is a supply bill.


This changes the amount of reserves in the banking system according to 
the reserve equation

[Figure 1 of the above article which shows the various contributions to 
member bank reserves].

But there are many source and use contributions to these reserves. 
Moreover the settling

of obligations in the banking system does not occur in anything like 
real time. There may be days

of delay. Having said this, there are various tricks that the central 
bank gets up to to keep the

money supply stable.


When a government prints or appropriates money in this fashion it also 
has implications

for the cash rate and the wider economy. Governments customarily use 
bond sales as a form of

collateral to prevent the overnight funds rate from dropping to zero 
that would otherwise result

from the sudden excess money supply.


I can imagine that having a distributed digital currency sort of like 
cash in the age of crypto might

be useful for coping with low latency distributed digital transactions. 
There may be other advantages

too. But I dont know exactly how it would work.


Gerard

On 15/5/23 18:39, Stephen Loosley wrote:
> From: David<mailto:dlochrin at aussiebb.com.au>
> Sent: Monday, 15 May 2023 12:48 PM
> To: Kim Holburn<mailto:kim at holburn.net>; Link mailing list<mailto:link at anu.edu.au>
> Subject: Re: [LINK] Central Bank Digital Currency (CBDC)
>
> On 14/05/2023 12:42 pm, Kim Holburn writes:
>
>>> I really don't understand the angst here.  We already have digital
>>>   currency. When was the last time you paid actual cash for anything?
>> David writes
>>
>> Any mention of "digital currency" may conjure up private currencies like
>> bitcoin, which AFAIK have no asset backing and can be extremely volatile.
>> Whatever the case, direct exposure of a Central Bank to the  unpredictable
>> whims of the general public seems unwise to me ..  _David Lochrin_
> Yes, good points all gentlemen. CBDC,  perhaps a solution looking for a problem?
>
> For example, the RBA Project ATOM noted below? “The project involved the development of a proof of concept for the issuance of a tokenised form of CBDC that could be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based DLT platform.”
>
> Anyway, here’s what our RBA has to say regarding Central Bank Digital Currency (CBDC)
>
> “Central Bank Digital Currency”
>
> Ref: https://www.rba.gov.au/payments-and-infrastructure/central-bank-digital-currency/
>
> The Reserve Bank is actively researching central bank digital currency (CBDC) as a complement to existing forms of money.
>
> The Reserve Bank currently issues two forms of money:
>
> physical money in the form of banknotes, which can be used by households and businesses to make payments, and
>
> digital money in the form of balances held in accounts that commercial banks and some other types of financial institutions can hold at the Reserve Bank to settle payment obligations between each other.
>
> A CBDC would be a new digital form of money issued by the Reserve Bank.
>
> It could be designed for retail (or general purpose) use, which would be like a digital version of banknotes that is essentially universally accessible, or for wholesale use, where it is accessible only to a more limited range of wholesale market participants for use in wholesale payment and settlement systems.
>
> A CBDC could potentially support a number of the Bank's policy objectives, including safeguarding public trust in money and promoting efficiency, safety, resilience and innovation in payment systems and financial market infrastructures.
>
> Our research has been looking at various possible use cases, exploring the potential benefits, opportunities and challenges associated with CBDC, and examining how a CBDC could be designed and developed if a decision was ever taken to implement one. Distributed ledger technology (DLT) is one possible technology platform we have been exploring that could be used to implement a CBDC. We have been collaborating with external parties on this research and will continue to do so.
>
> Projects
>
> Initial Digital Finance Cooperative Research Centre Announcement
>
> Media release issued on 9 August announcing commencement of research project
>
> ‘Australian CBDC Pilot for Digital Finance Innovation’ 821KB (White Paper)
>
> Project Atom
>
> A collaborative project undertaken in 2020–2021 between the Reserve Bank, Commonwealth Bank of Australia, National Australia Bank, Perpetual and ConsenSys, with additional input from King & Wood Mallesons. The project involved the development of a proof of concept for the issuance of a tokenised form of CBDC that could be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based DLT platform.
>
> Project Atom report 780KB (Link does not work)
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