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Begin New Search Topic Central Bank Author Maria Demertzis

1. The value added of central bank digital currencies: a view from the euro area

Author:
Maria Demertzis and Catarina Martins
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Different jurisdictions have set out different reasons for creating central bank digital currencies (CBDCs). Some countries, particularly those with already-operational CBDCs for retail purposes, aim to to promote financial inclusion. But in countries where most citizens have access to financial services, central banks are interested in CBDCs as an aspect of the increasing digitalisation of finance. Central banks could also choose to use CBDCs to guarantee in full citizen’s holdings (currently, deposits in commercial bank are only partially guaranteed), but this would trigger major changes in the financial system in terms of the role of commercial banks in intermediation and the role of fiat money. So far, central banks have not opted to go this way. In the euro area, consumers have multiple payment options and a very efficient retail payments system. The currency enjoys high levels of trust and is not challenged by the emergence of private currencies, such as Bitcoin, or by the risk that cash, a monetary system’s anchor, will disappear. Therefore, creating a CBDC for retail purposes in the euro area offers little obvious value added, at least for the foreseeable future. However, there is a strong case for building a CBDC that banks could use for cross-border wholesale purposes (ie with other currencies). Wholesale CBDCs could revolutionise the way that cross-border, cross-currency payments are made for two reasons. Cross-border payments are currently slow and inefficient. Pilot projects have shown that wholesale payments with CBDCs can generate substantial time and cost savings. Any two central banks that have operational wholesale CBDCs could settle transactions between themselves. This would be very different from the current system, as most settlements today are done via the dollar (and then the euro) infrastructure and use correspondent banks. The euro area and the United States would have to consider carefully from a geopolitical perspective how wholesale CBDCs might affect their global economic standing. By developing a CBDC for wholesale purposes, the European Union would be able to contribute to developing the global standard.
Topic:
Monetary Policy, Governance, Regulation, Central Bank, Digital Currency, and Euro
Political Geography:
Europe

2. An analysis of central bank decision-making

Author:
Maria Demertzis, Catarina Martina, and Nicola Viegi
Publication Date:
07-2022
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The process by which central banks take decisions has evolved over the years, with a tendency towards independence and decisions taken by committees rather than individuals. Monetary policy committees can be set up formally in different ways, traditionally falling into one of two categories: individualistic or collegial. Individualistic committees reach decisions by voting and publish the votes of each of their members, while in collegial committees, decisions are typically reached collectively. The European Central Bank is an example of the latter, while the Bank of England follows an individualistic approach. Focusing on decision-making, a relevant question is whether the formal set-up in practice leads to different ways of deliberating and reaching monetary policy decisions. We look at decisions taken by the Bank of England, the Federal Reserve and the European Central Bank over more than 20 years to evaluate how different the decision-making process is in these three central banks. The results indicate that, irrespective of the committee type, their approach to consensus building when they take decisions is similar. The three central banks seem to value reaching decisions by unanimity, both on interest rates – the prime monetary policy instrument by definition – and on asset purchases. Decisions to tighten monetary policy are more often taken unanimously than decisions to ease monetary policy. When maintaining policy unchanged, decisions are usually backed by most committee members.
Topic:
Federal Reserve, Finance, Central Bank, European Central Bank, Decision-Making, and Bank of England
Political Geography:
United Kingdom, Europe, Global Focus, and United States of America

3. An effective economic response to the Coronavirus in Europe

Author:
Maria Demertzis, André Sapir, Simone Tagliapietra, and Guntram B. Wolff
Publication Date:
03-2020
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
'Whatever it takes' needs to be the motto to preserve lives and reduce the impact on the economy of the epidemic.
Topic:
Governance, Economy, Central Bank, Macroeconomics, and COVID-19
Political Geography:
Europe

4. The next generation of digital currencies: in search of stability

Author:
Gregory Claeys and Maria Demertzis
Publication Date:
12-2019
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Four major developments have challenged the status quo and reopened the debate on the forms that money will take in the future: 1) use of cash as a medium of exchange has declined; 2) distributed ledger technology (DLT) has led to the emergence of thousands of digital cryptocurrencies; 3) some global tech giants are planning to provide private digital currencies to their billions of users in the form of stablecoins; and 4) in turn, public authorities are thinking about providing their own digital currencies to the general public. These developments raise questions about the implications for financial stability, the transmission of monetary policy and financial intermediation. This Policy Contribution focuses on the consequences stablecoins and central bank digital currencies could have. Stablecoins, such as Facebook’s Libra, differ from earlier generations of cryptocurrencies in three fundamental ways. First, they would start with large networks of users and global accessibility, two pivotal features for the critical uptake of a new currency. Second, given the current limitations of DLT, including in terms of energy efficiency, new stablecoins would rely on (more) centralised systems to validate transactions. Third, stablecoins would focus particularly on reducing the volatility in the value of the new currency. These new features of stablecoins attempt to correct some of the critical deficiencies identified in first-generation cryptocurrencies, which meant they did not acquire the main functions of money. However, new stablecoins raise other questions and potentially create new problems. One issue could arise from the more centralised (permissioned) validation system, which could lead to collusion problems. Another issue could arise from the reserve system that is supposed to ensure the stability of stablecoins, such as Libra, which could be incompatible with the profit maximisation behaviour of a private issuer. Facebook’s Libra plan has been a wake-up call to central banks and governments which, afraid of losing their monetary sovereignty, have renewed their interest in central bank digital currencies (CBDCs) as a potential solution. CBDCs could make private digital currencies less attractive and slow down their adoption. But there are other reasons to give the general public access to central bank liabilities. One important reason to provide CBDCs to citizens is that if cash disappears, citizens will lose direct access to sovereign money. Another benefit of the introduction of CBDCs is that monetary policy could be strengthened by transmitting it directly to the general public. However, the introduction of CBDCs could also be disruptive and create risks. In particular, CBDCs could have major consequences for financial intermediation. These risks would have to be evaluated by policymakers before any decisions are taken. If CBDCs are introduced, central banks would have to carefully calibrate their properties to minimise these risks. But, eventually, if these risks – and in particular the risk of structural financial disintermediation – do materialise, central banks would have various instruments to counter them.
Topic:
Science and Technology, Central Bank, Currency, Cryptocurrencies, and European Parliament
Political Geography:
Europe