Tuesday, February 25, 2020

Blog Reader Provides Link to an Article on Jacques Rueff

One of the benefits of doing this blog is that from time to time I get reader input pointing me to a variety of information and articles that touch on the ideas of how a monetary system should work.

In this case, I want to thank a reader here for fowarding me this link to an article that explores the views of French economist Jacques Reuff. Below I have pasted in a few excerpts from the article. The reader also advises me that he is collaborating with the author of this article (Samuel Gregg) on another article that will propose some ideas on how a monetary system should be structured later on this year. 

We are always happy to feature serious ideas and proposals on this topic here and then add them to our marketplace of ideas for monetary system reform page. The intent is to build an archive all on one blog page linking to a number of ideas for monetary system reform to make it easier for readers to consider them and compare them. I could not do this without all the help I get from reader input and experts who help me out. I always want express my thanks for that here.


Jacques Reuff's Monetary Order and US

"We live in strange monetary times. In Europe and Japan, central banks have implemented negative interest-rates to stimulate sluggish economies, despite overwhelming evidence that such policies aren’t working. The European Central Bank has even restarted its four-year old quantitative-easing program to try and overcome anemic growth throughout the Eurozone. Across the Atlantic, the Federal Reserve is trying to calibrate interest-rates to help America avoid a recession, even though there’s no consensus among forecasters of an imminent recession. Calls for the Fed to head towards negative-interest rates grow louder.
These trends suggest an international monetary system in which some of the world’s leading central banks seem driven by political reaction to immediate events and unfocussed upon what a primary goal of any sound monetary system: the provision of a stable unit of account that facilitates the free economic choices of consumers, households, and businesses over the long-term. From this standpoint, a type of monetary disorder is growing throughout the global economy.
Addressing the problem in a comprehensive way surely requires consideration of what truly constitutes order in a monetary system. Few people thought more about this question than the French economist and civil servant Jacques Rueff (1896-1978).
Searching for Order
"Perhaps the twentieth century’s foremost French economist, Jacques Rueff is primarily remembered for designing the economic reforms (Le plan Pinay-Rueff) imposed by Charles de Gaulle’s incoming government in December 1958 upon a France mired in economic crisis. These reforms—trade liberalization, spending-cuts, major tax and welfare changes, the termination of subsidies to many industries, and the franc’s devaluation—are widely acknowledged as having saved France from a perfect storm of currency instability, high inflation, uncompetitive industries, feeble capital markets, and low productivity. During the last fifteen years of his life Rueff moved from the French to the world stage, becoming a leading voice for restoring the classic gold standard as the Bretton-Woods system gradually collapsed."
. . . . 

Real Rights and False Rights
"But what type of framework should guide the state’s bolstering of monetary stability? This brings us to one of the most innovative aspects of Rueff’s thought about monetary order: his distinction between true or real rights (vrais droits) and false rights (faux droits).
By “real rights,” Rueff had in mind rights such as rights to property. These establish a minimum of economic order by clarifying who owns what, thus enabling people’s natural propensity and liberty to possess, use, and exchange things. Such rights nevertheless need to be given form, structure, and content by government policy and legal decisions. The establishment of contract laws, for instance, allows individuals to coordinate their use of their property in mutually beneficial ways.
The legal recognition of these rights is effective because it accords with economic truths about humanity. Such rights are thus “real.” Conversely, law and policies which contradict certain economic facts—supply and demand, the workings of incentives, humans’ tendency to pursue their self-interest, etc.—end up, Rueff says, creating “false rights.”
A government may declare, for instance, that people have a right to healthcare. But if markets in healthcare are not allowed to work, such a right merely exists on paper: hence, its “falseness.” Moreover, the fact that the state has affirmed this to be a right but proved unable to realize it, encourages disrespect for the law as well as increased demands by citizens that the government actualize what it cannot. In democratic societies, Rueff believed, it was hard for politicians to resist such pressures. This produces policies which magnify the proliferation of false rights through the economy."
. . . .

"The key to monetary order, Rueff teaches us, is to create institutions which help market relationships to function, rather than subverting them. Establishing and protecting such rules requires the inner conviction needed to resist temptations to short-termism, and a fortitude that seems beyond most legislators and many central bankers today. That, however, is all the more reason for us to listen to Jacques Rueff—someone notoriously unafraid to speak economic truth to politicians of all persuasions—and heed his insights in our own age of creeping monetary disorder."

Added note: We will keep an eye out for the new article mentioned by the reader expected to come out later this year and feature it here if and when it becomes available online.

Thursday, February 20, 2020

OMFIF Report - Central Bank Currencies - A Question of Trust

I got an email from the OMFIF (Official Monetary and Financial Institutions Forum) based in London alerting me to new report they have issued. The report is a look at global public confidence in monetary, financial, and payment institutions as it relates to the potential issuance of central bank digital currencies. It is based on a global public opinion survey poll.

Below I have pasted in the Executive Summary for this new report. I believe readers can access the full report here by providing an email address. I was able to do so by providing one. This is an interesting new look at who the public might most trust in the future for the issuance of "digital currencies". I would encourage readers to download the full report.

Executive Summary

Central Banks in Pole Position to Issue Digital Currency

"DIGITAL payments are proliferating worldwide and are proving increasingly popular. In China, the mobile payments market is worth $5.7tn and is dominated by two behemoths, Alipay and WeChat Pay. Facebook wants to launch Libra, a global digital currency, later this year, a move which has prompted wider discussion about central bank digital currencies. 

While the rise in digital payments is global, different regions have disparate needs. In advanced economies, services such as FedNow in the US and Faster Payments in the UK are evolving to meet the need for faster back-end payment solutions which can underpin retail payments. In emerging markets, the surge in mobile payments makes it much easier for workers to send remittances home to their families.

These changes in consumer behaviour and the surrounding policy debate make this the ideal time to present this OMFIF report, which centres on the findings of a global opinion poll on public trust in monetary institutions, payment characteristics and digital currency. The poll was conducted by Ipsos MORI across 13 advanced and emerging countries.

Our findings suggest that central banks are well-positioned to issue digital currency. In almost all countries, respondents indicated that they would feel most confident in digital money issued by the domestic monetary authority. Respondents globally expressed a lack of confidence in digital money issued by a tech or credit card company, particularly respondents from advanced economies.

The survey reveals significant differences in attitudes depending on levels of income and education, age and nationality. High-income and young respondents express the most confidence in current and future digital money, and consider speed to be part of the appeal.

The results indicate that openness to digital offerings rises with income and education levels, but declines with age. When respondents are asked about their preferred ideal characteristics for a payment method, they are unanimous in citing safety from fraud and theft as the most important feature, across all countries. Speed is the least important characteristic, suggesting that digital money will have to improve its safety features if it is to be to adopted widely.

The findings suggest that cash remains king: it has the highest average score across all different payment characteristics posed to respondents, across most different income, education and age groups. Cash is particularly popular in some advanced markets, such as the US and Britain. Respondents in emerging markets show the greatest level of willingness to embrace digital currency in the future and are open to the question of who should issue it.

These findings should prove informative and useful for monetary policymakers and private sector practitioners alike. They provide the first clear, quantitative indication of which groups and markets are most amenable to digital currency, and can serve as guidelines for regulators, central bankers and those working in the private sector who want to market their digital offerings to a broader audience.

Added comment: Once again I would call your attention to the next to last paragraph posted above from the Executive Summary. While we continue to see predictions of a future "cashless society" in various media articles, every study or report I see from any kind of official organization always includes a comment about how important cash remains as a payment system. They also usually note that there is no expectation that cash will be removed from the system any time soon and most studies even point out a number of hardships that would result from total elimination of cash used for payments. I think it is important to emphasize that for readers here.

Saturday, February 15, 2020

BIS Update - Central Bank Digital Currencies

In the recent BIS (Bank for International Settlements) monthly update, they have several articles dealing with the status of central bank digital currencies. Below I have pasted in this recent update.


February 2020

The green swan 

How should central banks preserve financial stability in the age of climate change?

Central bank digital currencies survey 

Central banks are doing extensive work on digital currencies, and a small number indicate that they are likely to issue one soon.

Policy responses to fintech

FSI Insights paper provides a cross-country overview of policy responses to fintech developments.

Monetary policy frameworks

At an American Economic Association panel organised by the BIS, policymakers discuss whether monetary policy frameworks are still adequate to cope with the challenges central banks are currently facing.

Creating a credible and trusted digital currency

Benoît Cœuré takes part in a panel discussion on the likelihood of a trusted global digital currency and what trends could shape its future.
More BIS publications 

Statistics: Cross-border bank lending accelerates
Global cross-border bank lending grew by 9% year on year at end-September 2019.

Announcement: BIS expands membership
The BIS invites the central banks of Kuwait, Morocco and Vietnam to become members and increases emerging market representation in key committees.

Statistics: US dollar credit outside the US expands
Dollar credit to non-bank borrowers outside the US grew by 5% year on year at end-September 2019.

Wednesday, February 12, 2020

Fed Chairman Discusses a US "Digital Currency" with Congress

We continue to monitor this space since central banks do continue to talk about the idea of possible issuing central bank digital currencies. We have several articles on the blog this month that cover various aspects of this issue.

Here we have Fed Chairman Powell responding to Congressional inquiries about it. There is nothing really new to report here but below I have posted a couple of excerpts from this news article on Yahoo about Powell's recent comments to Congress.

"On Tuesday, Federal Reserve Chairman Jerome Powell gave his monetary policy report in front of the U.S. House Financial Services Committee, and then withstood hours of questions from members of Congress.
Rep. Bill Foster, a Democrat from Illinois, spent his entire five minutes asking Powell about cryptocurrency.
That line of questioning yielded some perspective from Powell that the Fed chair not previously given, and his responses could stoke optimism or disappointment from many in the cryptocurrency world, depending on how they want to parse his typically very deliberate word choice.
So, what did we learn about Powell and crypto?"
. . . .

“Frankly, Libra really lit a fire,” Powell said, “and was a bit of a wakeup call that this is coming fast and could come in a way that is quite widespread and systemically important—fairly quickly, if you use one of these big tech networks like Libra did. We fully appreciate the importance of making quick progress—we have not decided to do this, though. There are many questions that need to be answered around digital currency for the United States, including cyber issues, privacy issues; many many operational alternatives present themselves, so we’re going to be working through all that.”

My added comment: This article goes on to further state that Chairman Powell made it clear that the Fed has no current plans to implement a central bank digital currency in the US and another article I read said the US sees no need for it any time in the next five years.
Coming up later this month are some updates from the BIS on its views on central bank digital currencies and a new report from the OMFIF on CBDC's based on a recent global survey poll.

Added note: A thank you to reader Doug in the comments below for this link related to the Fed and a future digital currency:


Saturday, February 8, 2020

Word Economic Forum - Central Bank Digital Currency Policy Toolkit

A thank you to a reader for passing along the link below to a report from the recent World Economic Forum that discusses policy tools for central banks considering using either a wholesale or retail version of a central bank digital currency.

We continue to see very little change in that arena so far and continue to expect any changes we do see to be slow and gradual in nature.


WEF - Central Bank Digital Curreny Policy-Maker Tookkit

Executive summary

"In recent years, central bank digital currency (CBDC), a new form of digitized sovereign currency, has risen to prominence as a policy and operational consideration for many central banks, ministries of finance and other institutions. The intricacies of implementing CBDC are complex and the implications are wide‑reaching. As a result, policy‑makers may find themselves in uncharted waters when attempting to evaluate the potential benefits and trade‑offs associated with CBDC.

 The World Economic Forum’s CBDC Policy‑Maker Toolkit seeks to address the need for a concise CBDC decision guide that provides comprehensive and risk‑aware information to policy‑makers. This document serves as a possible framework to ensure that any CBDC deployment fully considers the costs as well as the potential benefits, appraising a multitude of risks and evaluating deployment and governance strategies, alternative solutions and other salient factors. Notably, it is not exhaustive, and instead intends to serve as a complement to additional research that any policy‑maker considering CBDC should conduct.

The CBDC Policy‑Maker Toolkit provides high‑level guidance and information for: 

– Retail, wholesale, cross-border CBDC and alternatives in private money such as “hybrid CBDC”
 – Large, small, emerging and developed countries."

. . . . 

"As policy‑makers navigate this process, they should consider how CBDC may introduce new capabilities that support regulatory goals while also introducing new risks or compliance vulnerabilities. CBDC could potentially be used as a tool to achieve policy objectives such as improved safety and resilience in payments systems; increased efficiency, access and competitiveness of payments systems; better data transmission and reporting to central banks; and financial inclusion. The achievement of these goals with CBDC must be evaluated in the full context of the associated trade‑offs and risks that CBDC may entail." 

My added comment: I noticed this note from page 19 of the report linked above regarding the future of cash. I added the bold underline below for additional emphasis:

"Physical cash, particularly small banknotes, guarantees financial inclusion more than any other means of payment. Cash serves as a last‑resort means of payment and store of value in the event of payment‑system shocks and failures. For many, it is also their primary means of payment and savings. The central bank should not develop policies that remove small banknotes from retail use until a fully reliable alternative is available to all members of the population, which may not be possible." (see page 19)

Once again, for those expecting cash to disappear any time soon, I see nothing on the immediate horizon that suggests that to be the case for the reasons noted above and others that various central banks have cited including the US Federal Reserve.


Added note: The Bank for International Settlements (BIS) produces this press release on CBDC news:

Central Bank Group to Assess Potential for CBDC's

"The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements (BIS), have created a group to share experiences as they assess the potential cases for central bank digital currency (CBDC) in their home jurisdictions. 
The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies. It will closely coordinate with the relevant institutions and forums - in particular, the Financial Stability Board and the Committee on Payments and Market Infrastructures (CPMI). 
The group will be co-chaired by Benoît Cœuré, Head of the BIS Innovation Hub, and Jon Cunliffe, Deputy Governor of the Bank of England and Chair of the CPMI. It will include senior representatives of the participating institutions."

Monday, February 3, 2020

Facebook's Project Libra Continues to Face Headwinds

We covered Project Libra initiated by Facebook here some last year. While the project (which involves Facebook attempting to launch another payment system based on its own "Libra" cryptocurrency) attracted a lot of attention, we did note that we expected it to also encounter a lot of resistance as well.

That has proven to be the case as the two articles linked below point out. Below is a brief excerpt from each article.


Coindesk.com - Vodafone is the Latest Big Company to Quit Project Libra

"Vodafone and Libra both confirmed Tuesday the company is no longer part of the consortium. Vodafone will dedicate resources previously intended for Libra to its well-established and successful digital payment service M-Pesa, which the company plans to expand beyond the six African nations currently served."

. . . . 

While Libra originally intended to launch in the first half of 2020, this timeline was thrown into doubt last year when Facebook CEO Mark Zuckerberg said regulatory concerns might push back the date.

Speaking on stage at the Blockchain Central panel held by the Global Blockchain Business Council at Davos, Disparte (Libra Association) further hinted at a possible delay in the launch schedule."

Bloomberg - Facebook's David Marcus Vows to Move Forward with Libra

"The Facebook Inc. executive responsible for the embattled Libra cryptocurrency said he doesn't fault companies that pulled out of the project, adding that he's optimistic more organizations will sign on despite intense opposition from politicians who seem to fear financial innovation."

. . . . .

"Visa, Stripe and Mastercard received letters earlier this month from Democratic U.S. Senators Sherrod Brown and Brian Schatz that urged the companies to "carefully consider" how they would manage potential risks associated with Libra before proceeding with the project. Asked if he thought the letter constituted a threat from the senators to the companies, Marcus responded, "I don't know, what it did it sound like to you?" He added that such correspondence can have a "chilling effect."

My added comment: We continue to report here that major changes to the present monetary system are likely to be gradual in nature unless some kind of systemic crisis forces more rapid change. As these articles continue to illustrate, the status quo is quite powerful and hard to change without some kind of outside force impacting its stability.

Added note: Upcoming this month are several interesting articles on the future prospects for various kinds of digital currencies. These artciles will include some of the latest information from the World Economic Forum, the Bank for International Settlements, and the OMFIF based in London. If you review all these articles, you will be pretty well caught up with some of the latest information on this topic.