The Reinvention of Money and Monetary Policy? Digital Currency and MMT
Paper Session
Friday, Jan. 6, 2023 2:30 PM - 4:30 PM (CST)
- Chair: Mary Wrenn, University of the West of England
The Evolution of Innovation Agencies in Developing Countries: The Response to Crises in the Digital Economy
Abstract
The digital economy is part of the response to address socioeconomic issues by enabling new modes of economic activity and innovation. Digitalization presents opportunities and challenges for innovation by addressing institutional issues. Digitalization offers the removal of barriers to economic activity that allows for numerous possible variations of delivery of goods and services even in developing country contexts. Those economies around the world rewarded boons through the digital efficiencies gained from moving more information more easily, faster, and farther than before. Yet, digitalization can also embed existing practices more resolutely into institutional practices. Recent research on innovation policy emphasizes the need for mission-oriented policy to address the grand challenges that are faced today. COVID presents the world with rare opportunity to see how public policy implementation responds to crises such as a pandemic. Existing institutions need to respond to change with agility, especially in innovation. Evolutionary economics emphasizes innovation development through a process of variation, selection and replication. The selection criteria were abruptly altered as the pandemic set in. Lastly the replication processes are likewise altered by similar forces. This study asks how do innovation agencies promote development under evolutionary economics frameworks, especially in response to crises? The implementation of mission-oriented policies is still not well understood, especially in dramatically changing circumstances. This study will examine how innovation agencies operate in these conditions and how they respond to changes demanded. Comparative case studies will be presented from South Korea, Cambodia, the Philippines, and Vietnam. Initial results suggest that the institutional structures are important factors in resilient and agile responses. The different cases represent various institutional models that respond differently depending on the characteristics they embody. The implications of these results indicate different possibilities for responding to crises that should be considered when crafting mission-oriented policy.Stateless Money? Cryptocurrencies and Digital Banking in Brazil
Abstract
This article will discuss the political economy of digital money in Brazil. Unlike cryptocurrencies, digital banking has had the active support of the Brazilian state. Digital banks play a major role in “Pix”, an online payment system created by the central bank in 2020 which has largely eliminated transfer fees as well as the need for paper money. Other regulatory changes over the course of the 2010s reduced entry costs for investors wishing to form digital banks. Though not required to maintain branches or provide cash withdrawal services, the digital banks enjoy some of the key privileges bestowed upon traditional banks. Most importantly, they have been allowed to open what are essentially reserve accounts (called “liquidation accounts”) at the central bank, through which they may operate on the interbank lending market, settle balances with other banks, and obtain loans from the central bank. This virtually eliminates the possibility of “runs” on the digital banks, and allows their customers to make and receive payments just as with traditional checking accounts. Brazil’s digital banks, in short, have become privileged members of the country’s state-led “payment community” (Georg Knapp, 1905; John Commons, 1934), and this is why electronic money, as opposed to cryptocurrency, has flourished as a means of payment in the country.Nonetheless, evidence suggests digital money will not solve a fundamental problem facing working-class Brazilians: access to cheaper credit. The rates currently charged by digital banks on consumer loans are not lower than those set by older commercial banks. Furthermore, the central bank has imposed harsh reserve requirements on them, limiting their ability to create money. We conclude by discussing the use of cryptocurrency in Brazil, as well as the central bank’s plans to create a digital version of the real.
Social, Political and Economic Dimensions of the Instituted Process of Central Bank Digital Currency: The Case of the Digital Yuan
Abstract
As a response to the rapid expansion of private-sector digital currencies like bitcoin since the end of the 2000s, the establishment of central bank digital currency (CBDC) has been on the agenda of governments around the world. In this article, I expand on the concept of the instituted process (as per Karl Polanyi 1957, 243-270) to examine the essence of CBDC. While most recent studies discuss the possible configurations and different technologies that could be employed by CBDC (e.g., centralized versus decentralized blockchain ledgers) and the corresponding costs and benefits, I analyze the formulation of CBDC as an instituted process from the standpoints of the social and political economies. To this, I evaluate how the practices of CBDC like its dynamic role in government monetary and other macroeconomic policies and its interplay with social and economic activities may actually change unity and stability, as well as the structure and function of our economic societies.Specifically, I analyze the case of the digital yuan which was formally introduced by the Chinese government in 2021. I portray how the instituted process of the digital yuan enhances current understanding of the social and economic changes of China in a global context. Then, I emphasize both the favorable experiences and concerns from the practices of the digital yuan thus far that offer valuable policy implications. Finally, I remark on various controversial topics like the international speculation that the expansion of the digital yuan may challenge the dominance of the US dollar in the world economy. I conclude by arguing that to ensure a better result from this ongoing irreversible process, the decision of the government to introduce CBDC must be followed by timely reviews and effective policy adjustments in congruence with feedback from its citizens.
Virtual Property and Governance Structures with Blockchain
Abstract
I combine Thorstein Veblen’s “diagnostic” approach with John R. Commons’ “remedial” approach to analyze virtual property. I focus my analysis on public blockchain based discreet assets. I conclude that the failure to fulfill two of the libertarian promises (namely, decentralized and trustless finance) does not discredit blockchain technology as such. Permissioned blockchain has promising applications. However, virtual property that is based on public blockchain facilitates extraction of value that must be politically and juridically regulated together with empowering citizens.A New Tool for Economic Policy: Central Bank Digital Currencies
Abstract
We consider the possible advantages of a new policy tool, Central Bank Digital Currencies (CBDC). We compare the effectiveness of traditional fiscal and monetary stimuli with the introduction of a CBDC within a Stock-Flow Consistent framework.We consider two possible targeting of the CBDC: to households (poorer or richer ones), and to firms. We show that the CBDC can have a strong and durable impact on GDP. A further advantage is the activation of a new transmission channel, which crucially depends on the sensibility of investment and of the interest rate to firms’ leverage.
Yet, both for a CBDC targeted to households and to firms, a possibly crucial risk is that it might reduce the demand for banks’ deposits and/or for their loans, thus creating challenges for financial stability.
JEL Classifications
- B5 - Current Heterodox Approaches
- E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit