Will IT Technologies and Globalisation Change the Mechanism of Money Creation?
DOI:
https://doi.org/10.15678/ZP.2019.50.4.01Keywords:
money creation, bitcoin, central bank, digital currencies, Eurodollar market, Target 2 imbalancesAbstract
Objectives: The article addresses the question about whether IT technologies and the ongoing globalisation are likely to impact the money creation mechanism.
Research Design & Methods: For this purpose, the article reviews the experiences of free banking, the endeavours to promote the bitcoin as a new currency, the discussions on digital currencies issued by central banks, the experiences with Eurodollar market, and the emergence of imbalances in the TARGET2 (the Eurozone payment system).
Findings: The analysis leads to two general findings. The first one is that cryptocurrencies are unlikely to replace the existing monetary system. The second one is that the increasing globalisation creates the need for the most important central banks to expand their role as international lenders of last resort.
Implication / Recommendations: One implication of the main findings of the paper is that cryptocurrencies will have to go through a long evolution before they might have a chance to become an integral part of the monetary systems instead of being purely speculative assets. The other implication is that the experiences with the TARGET2 system revealed the ECB’s large potential to prevent sudden halts in international trade.
Contribution / Value Added: The article’s added value with regard to the existing literature is highlighting that the main reason why the deposit money created by commercial banks (making the bulk of money supply today) will not be replaced by cryptocurrencies stems mainly from the fact that the latter cannot be allocated in an economically rational way. The other contribution is underscoring that the TARGET2 imbalances reflected the positive role played by the ECB in alleviating the consequences of the global banking crisis of 2007-2009 and the Eurozone debt crisis of 2010-2012.
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Rolnick, A.J., Smith, B.D., & Weber, W.E. (1998). Lessons from a laissez-faire payments system: The Suffolk banking system (1825-58). Federal Reserve Bank of Minneapolis Quarterly Review, 22, 11–21.
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Turner, A. (2016). Between Debt and the Devil. Money, Credit and Fixing Global Finance. Princeton: Princeton University Press.
Whittaker, J. (2016). Eurosystem debts do matter, Lancaster University Business School Monetary Research. http://www.lancs.ac.uk/staff/whittaj1/EurosystemSept16.pdf.
Bordo, M.D. (2014). Rules for a Lender of Last Resort: An Historical Perspective. Journal of Economic Dynamics and Control, 49, 126–134.
Bordo, M.D. (2007). A Brief History of Central Banks. Economic Commentary. Cleveland: Federal Reserve Bank of Cleveland.
Borio, C. (2019). On Money, Debt, Trust and Central Banking. Cato Journal, 36(2), 213–238.
Broz, J.L. (2015). The Federal Reserve as Global Lender of Last Resort, 2007–2010. Systemic Risk Centre Discussion Paper, 30.
Callesen, P. (2017). Can Banking Be Sustainable in the Future? A Perspective from Danmarks Nationalbank. Copenhagen: Danmarks Nationalbank.
Cassel, G. (1936). The Downfall of the Gold Standard. Oxford: Calderon Press.
Cecchetti, S.G., & Schoenholtz, K.L. (2018). Target 2 Balances Mask Reduced Financial Fragmentation in the Euro Area. https://www.moneyandbanking.com/commentary/2018/7/8/target2-balances-maskreduced-financial-fragmentation-in-the-euro-area.
Danielsson, J. (2018). Cryptocurrencies: Policy, economics and fairness. Systemic Risk Center Discussion Paper, 86.
Dodd, N. (2017). The social life of Bitcoin. Theory, Culture & Society, LSE Research Online. http://eprints.lse.ac.uk/69229.
De Grauwe, P., Ji, Y., & Macchiarelli, C. (2017). TARGET (im)balances at record level: Should we worry?, in-depth analysis for the ECON Committee, European Parliament, November. https://www.europarl.europa.eu/cmsdata/131943/MD%20LSE%20formatted_FINAL%20publication.pdf.
Eichengreen, B. (2019). From Commodity to Fiat and Now to Crypto: What Does History Tell US?, NBER Working Paper, 25426.
Eichengreen, B. (2017). The Renminbi Goes Global. The Meaning of China’s Money, Foreign Affairs, 96(2), March/April, 157–165.
Eisenschmidt, J., Kedan, D., Schmitz, M., Adalid, R., & Papsdorf, R. (2017). The Eurosystem‘s asset purchase programme and Target balances. ECB Occasional Paper, 196.
Fieleke, N.S. (1971). The Welfare Effects of Controls over Capital Exports from the United States. Essays in International Finance, 82.
Friedman, M. (1971). The eurodollar market: Some fist principles. Federal Reserve Bank of St. Louis Review, 53(7), 16–24.
Goodhart, Ch.A.E. (2009). The boundary problem in financial regulation. In: The Fundamental Principles of Financial Regulation. Geneva Reports on the World Economy, 11, London: CEPR.
Gorton, G. (1993). Reputation formation in early bank debt market. NBER Working Paper, 4400.
Gorton, G., & Tallman, E.W. (2016). Big-to-Fail before the Fed. Federal Reserve Bank of Cleveland Working Paper, 12(16).
Gros, D. (2017). Target imbalances at record levels: Should we worry? Policy Insights, 2017/41.
Grym, A., Heikkinen, P., Kauko, K., & Takala, K. (2017). Central bank digital currency. Bank of Finland Economic Review, 5, 2–10.
Gurtler, K.E, Nielsen, S.T., Rasmussen, K., & Spange, M. (2017). Central bank digital currency in Denmark? Analysis, 28.
Handig, M., Holzfeind, R., & Jobst, C. (2012). Understanding Target 2: The eurosystem’s euro payment system from an economic and balance sheet perspective. Monetary Policy and the Economy, issue 1, 81–91.
He, D., & McCauley, R. (2012). Eurodollar banking and currency internationalization. BIS Quarterly Review, June, 22–46.
Hristov, N., Hülsewig, O., & Wollmershäuser, T. (2018). Capital flows in the Euro Area and Target 2 balances. CESifo Working Paper, 6877.
Kuzin, V., & Schobert, F. (2015). Why does bank credit not drive money in Germany (any more)? Economic Modelling, 48, 41–51.
Lall, R. (2012). From failure to failure: The politics of international bank regulations. Review of International Political Economy, 19(4), 1–30.
Lall, R. (2015). Timing as a source of regulatory influence: A technical elite network analysis of global finance. Regulation & Governance, 9(2), 125–143.
Marszałek, P. (2014). Systemy pieniężne wolnej bankowości (Monetary systems during the free banking era). Poznań: Uniwersytet Ekonomiczny w Poznaniu.
McCauley, R.M., McGuire, P., & Sushko, V. (2015). Global dollar credit: Links to US monetary policy and leverage. BIS Working Paper, 483.
McLeay, M., Amar, R., & Ryland, T. (2014). Money creation in the modern economy. Bank of England Quarterly Bulletin, Q1, 54(1), 14–27.
Moen, J., & Tallman, E. (2013). Close but not a Central Bank: The New York Clearing House and Issues of Clearing House Loan Certificates, Federal Reserve Bank of Cleveland Working Paper, 13–08.
Nakamoto, S. (2009). Bitcoin open source implementation of P2P currency. https://satoshi.nakamotoinstitute.org/posts/p2pfoundation/threads/1/.
Philippon, T. (2016). The Fintech opportunity. NBER Working Paper, 22476.
Prasad, E.S. (2018). The Slow, Uneven Rise of the Renminbi. Cato Journal, Spring/Summer
Reinhart, V. (2011). A Year of Living Dangerously: The Management of Financial Crisis in 2008. Journal of Economic Perspectives, 25(1), 71–90.
Rolnick, A.J., Smith, B.D., & Weber, W.E. (1998). Lessons from a laissez-faire payments system: The Suffolk banking system (1825-58). Federal Reserve Bank of Minneapolis Quarterly Review, 22, 11–21.
Roubini, N. (2018). “Crypto is the Mother of All Scams and (Now Busted) Bubbles While Blockchain is the Most Over-Hyped Technology Ever, No Better than a Spreadsheet/Database”, Testimony for the Hearing of the US Senate Commission on Banking, Housing and Community Affairs on Exploring the Cryptocurrency and Blockchain Ecosystem.
Sanches, D. (2016). The Free-Banking Era: A Lesson for Today? Federal Reserve Bank of Philadelphia Economic Insight, Third Quarter.
Shin, H.S. (2012). Global Banking Glut and Loan Risk Premium. IMF Economic Review, 60, 155–192.
Sinn, H.W., & Wollmershausser, T. (2012). Target loans, current account balances and capital flows: The ECB’s rescue facility. International Tax and Public Finance, 19(4), 468–508.
Sławiński A. (2016). The role of the ECB’s QE in alleviating the Eurozone debt crisis. Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu, 428.
Sławiński, A., & Hausner, J. (2018). Value in finance. From the OEE perspective, OEE Book 3. Kraków: Fundacja Gospodarki i Administracji Publicznej.
Soderberg G. (2018). Are Bitcoin and other crypto-assets money? Sveriges Riksbank Economic Commentaries, 5.
Sveriges Riksbank (2017). The Riksbank’s e-krona project. Action plan for 2018. https://www.readkong.com/page/the-riksbank-s-e-krona-project-actionplan-for-2018-3255197.
Tobin, J. (1963). Commercial banks as creators of money. Cowles Foundation Discussion Papers, 159.
Turner, A. (2016). Between Debt and the Devil. Money, Credit and Fixing Global Finance. Princeton: Princeton University Press.
Whittaker, J. (2016). Eurosystem debts do matter, Lancaster University Business School Monetary Research. http://www.lancs.ac.uk/staff/whittaj1/EurosystemSept16.pdf.
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Published
2020-02-28
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Section
Articles
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Open Access, licence: CC-BY 4.0
How to Cite
Sławiński, A. (2020). Will IT Technologies and Globalisation Change the Mechanism of Money Creation?. Journal of Public Governance, 50(4), 5-14. https://doi.org/10.15678/ZP.2019.50.4.01
