Group items tagged

"If the ultimate outcome of a private market for money is a monopoly, does it make much difference whether the monopoly is run by a private company versus a public entity? While the former case could lead to economic exploitation based on a market advantage, the threat of potential competition would inhibit this tendency. The latter case, however, invites a more sinister abuse of government power - even tyranny - as government precludes market entry to alternative issuers."

The payment system remains one of the last true monopolies of a modern economy. Financial technology startups and cryptocurrencies have all sought to bust up that monopoly. With its new digital currency, Libra, Facebook may actually succeed by doing what none others have: by creating a de facto central bank to issue it.

"Governments need to ensure that central banks' monopoly over coins and notes is not replaced by private monopolies over digital money, and they should maintain banks' obligation to keep customer information private, so that the plumbing remains anonymous. Digital firms that use this plumbing to offer services should be free to monetize transaction data, through, for example, advertising, so long as their business model is made explicit to users. The phase-out of cash should be gradual. For a period of ten years, banks should be obliged to accept and distribute cash in populated areas. This will buy governments time to help the poor open bank accounts, educate the elderly and beef up internet access in rural areas."

The IMF published a paper that explores how the introduction of an informationally more intrusive digital payment vehicle affects households' cash use, credit access, and welfare. For example, lenders can exploit households' payment data to infer their creditworthiness, but households then face a tradeoff between protecting their privacy and credit access. A tech monopolist controls the intrusiveness of the new payment method and manipulates information asymmetries among households and oligopolistic banks to extract data contracts that are more lucrative than lending on its own. The laissez-faire equilibrium entails a digital payment vehicle that is more intrusive than socially optimal, providing a rationale for regulation.

"The Federal Reserve Board is considering a decision about the future of digital banking that goes well beyond the narrow question of whether now is the time to transition to immediate payments. The board will decide whether the Federal Reserve will continue to play an operation role in digital payments."

The State Administration of Foreign Exchange of China has collaborated with ZhongChao Credit Card Industry Development Co., Ltd, a state-owned monopoly enterprise to built a blockchain-based cross-border financial trade service platform.

Riksbank's Hanna Armelius: Central banks need to consider issuing digital currencies or leave citizens vulnerable to market power. Cashless societies could leave payment systems vulnerable to "increasing monopoly power … if there's no sort of competition from central bank money."

Antitrust regulators at the European Commission, the executive branch of the European Union, have sent out a questionnaire to determine whether Facebook's proposed stablecoin Libra is an anticompetitive project.

The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, we show that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endangered maturity transformation.

"The possibility and logistics of developing a central bank digital currency for the general public has attracted significant attention. Such an initiative would require central banks to be involved in financial intermediation and maturity transformation. This column explores the implications of such a venture by central banks using a classic banking model. With sufficient competition, a central bank digital currency can be beneficial and achieve the optimal allocation of funds. However, it also risks giving central banks excessive monopoly power, which could result in inferior outcomes."

LSE Economist Jon Danielsson argues that most of us would not want to live in a society where bitcoin succeeds, although the internal contradictions and perverse consequences of crypto-asset success mean that they are destined for failure. The value proposition for bitcoin is that it will displace fiat money, and Danielsson argues that there can only be either full displacement or no displacement, but full displacement is not desirable or feasible. If it succeeds (full displacement) the big holders ("whales") will become the wealthiest people in the world, and this would lead to greater inequality, social division and populism. However, if bitcoin becomes that successful, national authorities will jump in to protect their fiat currency monopolies, at which point the value of bitcoin heads to zero.

The People's Bank of China (PBOC) has ordered Ant Group to "cut off" the "improper connections" between its payment platform and its financial products. The PBOC also told told Ant to become a financial holding company that will be regulated more like a bank, eliminate unfair competition in its payments business, end its monopoly on information, improve its corporate governance, and better manage liquidity risks in its major fund products (including downsizing its Yu'ebao money-market fund ). http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4229432/index.html

The People's Bank of China (PBOC) and four other regulatory agencies summoned 13 domestic internet platform companies including Tencent, JD Finance and ByteDance for talks on their financial businesses. The firms were urged to bring their online lending and deposit-taking businesses in line with regulatory requirements, and to to refocus on their payment service business, enhance their transaction transparency and break any information monopolies. http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4241211/index.html

The Central Bank of Cuba has granted a licence to the country's telecommunications monopoly, Etecsa to operate a digital wallet service. The wallets will have a maximum balance of 5,000 Cuban pesos, and individual transactions will be limited to 1,500 pesos. Customers can only use the wallets to make payments at businesses that use Transfermovíl, to transfer money between wallets, or to transfer to bank accounts. The app will not facilitate cash withdrawals. Users can transfer money into the wallet from bank accounts or from their mobile telephone accounts.

"A basket like Libra's will not work. It threatens the sovereignty of states and opens up a window for capital flight. That's why you've seen politicians and regulators furiously defend their monopoly to control transactions."

"Libra could do to central banks what Uber and Lyft did to the taxi cartels-bust up their monopolies, or, to coin a phrase, give them a run for their money."

The U.S. Justice Department has sued to block Visa's $5.3 billion acquisition of bank data sharing startup Plaid, citing competition concerns. It claims that "Visa is a monopolist in online debit transactions, extracting billions of dollars in fees annually from merchants and consumers. Plaid, a financial technology firm with access to important financial data from over 11,000 U.S. banks, is a threat to this monopoly: it has been developing an innovative new solution that would be a substitute for Visa's online debit services. By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.

In this paper, a unique event is studied: the opening of Bank of Canada in 1935, the central bank note issuance monopoly and its impact on the note issuing chartered banks. Between 1935-1950, Canadian chartered banks had to gradually withdraw their notes from circulation. In a difference-in-differences analysis, it shows that chartered banks constrained by new issuance limits experienced higher volatility of return-on-equity in the short run and lower Z-scores and return-on-assets in the longer horizon, suggesting that note issuance was an important source of revenue for private banks and allowed them to smooth the profits. The effect on lending is either non-significant or ambiguous. This study of central bank cash implementation can offer lessons for the current debates on a new form of central bank money - central bank digital currencies - and their potential impacts on commercial banks.

Central Bank Digital Currency: Central Banking for All? This St. Louis Fed paper, which has been kicking around in draft form for some time, discusses how the introduction of a central bank digital currency allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. In such a world, because a central bank is not an investment expert and cannot invest in long-term projects itself, it relies on commercial banks to do so. The paper derives an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, it shows that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endanger maturity transformation.

In a market where consumers choose between payment options, and firms compete with products and prices, we show that payment data drives the formation of a market monopoly. Active intervention can successfully restore and maintain a competitive market, but often at the expense of both efficiency and consumer welfare. The introduction of a low-cost anonymous means of electronic payment, or digital cash, preserves the market structure and improves consumers' welfare by enabling them to monetize their private information. There are, however, challenges to the private provision of digital cash. We discuss the potential role of central banks in providing digital cash.