Digital money and central bank balance Sheets

The IMF published a paper by Adrian Armas and Manmohan Singh that examines the impact of digital money on central bank balance sheets and monetary policy. They show that the impact will depend on the type of substitution into digital money. For example, interest rate and credit monetary policy channels may become weakened by nonbank stablecoins that are backed by investments in government securities, or if there is substitution out of bank deposits into central bank digital currency (CBDC). The common factor in these cases is a reduction of banking credit. However, when substitution is out of currency in circulation (i.e., cash) into private digital money that is deposited at banks, banking credit could expand. [Download at IMF.org]

Use of cash by companies in the euro area

In 2021 the European Central Bank (ECB) launched its first survey on the usage of cash among companies to understand their strategic view on the current and future use and acceptance of cash. It found that almost all businesses surveyed accept cash (even in cash-lite countries, like the Netherlands, 90% accept cash), most businesses prefer customers to pay with card but a quarter prefer cash, security and reliability are the top criteria when deciding on payment type, and very few that accept cash intend to stop accepting it in the future. The ECB concluded that the results provide further support for the Eurosystem’s cash strategy to continue to ensure that cash remains widely available and accepted as a means of payment and store of value. [Read more at the ECB]

Knocked down during lockdown: the return of cash

The Bank of England conducted surveys in 2021 to gain further insights into the store of value role of banknotes. They confirm that over the past decade, the fall in transactional cash use in the UK has been accompanied by a rise in the value of notes in circulation. Covid intensified this trend. As Covid restrictions have lifted, there has been a partial recovery in cash use, and more recently, a stabilization in cash use trends. The value of notes in circulation remains elevated, as people are holding more cash as a store of value.  And there remains a sizable share of the population who value cash and for whom cash remains their preferred means of payment. The Bank reiterated its commitment to  to ensure that cash remains available and accessible for those who want to use it. [Read more at the Bank of England]

Latin America: Financial Inclusion and CashTech Solutions

Most Latin American consumers remain conspicuous cash users. Thus, CashTech could be very successful as specialists are looking for ways to bridge the gap between the digital economy and the cash economy, and many incumbents and startups have launched CashTech solutions in the region. For examples, banks have implemented cardless cash withdrawals through their apps, Amazon allows users in the region to pay for goods with cash through Amazon PayCode and Amazon Cash, and retail chain OXXO, which provides cash and correspondent banking services in its more than 19,000 stores in Mexico, has partnered with BBVA and Santander to offer cash-withdrawal services and with Ria Money Transfer to delivers cash remittances. [Read more at Cash Essentials]

Custodia Bank’s master account lawsuit against Fed likely to advance

“Judge Scott Skavdahl of the U.S. District Court for the District of Wyoming said he likely would not dismiss the lawsuit Custodia Bank filed against the [Fed] earlier this year. Following oral arguments from all parties, Skavdahl declined to issue a ruling from the bench on the Fed’s motion to dismiss the lawsuit. He noted that the scope of the suit might be adjusted but the matter would likely survive “in some form.” Custodia, a Wyoming-chartered special-purpose depository, sued the Fed in June, hoping to compel it to make a decision on the company’s roughly two-year-old application for a master account with the Kansas City Fed.” [Read more at American Banker, some of Skavdahl’s comments are a hoot]

Kiffmeister’s Global Central Bank Digital Currency Monthly Monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

The CBDC Think Tank is a New York-based technology- and vendor-agnostic digital currency knowledge-sharing hub for staff of central banks, international financial institutions (IFIs) and non-government organizations (NGOs). It runs webinars, workshops, and masterclasses to disseminate knowledge and facilitate communication. It also engages in advisory work, focusing on delivering impact that best aligns with the needs of its clients and the forward progress of human civilization. The CBDC Think Tank welcomes requests from central bank officials for CBDC advisory services.  [click here for more information].

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]