Blockchain & Money: Session 16: Central Banks and Commercial Banking, Part 2 by M.I.T. Sloan School of Management with Professor Gary Gensler

Session 16: Central Banks & Commercial Banking, Part 2

Overview: Readings and Study Questions; Review of Central Banking & Approaches to Blockchain Technology; Private Banknotes and Stable Value Tokens; Central Bank Digital Currency; Conclusions.

Session 16: Study Questions
- What lessons, if any, can be drawn from related experimentation–Ecuador, Senegal, Philippines–to date?
- Might stable value coins spur central banks into adopting CBDCs? What might Mastercard be considering with their patent for ‘blockchain currency’ fractional reserves?
- What recommendations would you have for Sweden’s Riksbank (dating from 1668, the world’s first central bank) for possible adoption of e-krona?
Session 16: Readings
- ‘The Riksbank e-krona project Action plan for 2018’, Sveriges Riksbank.
- ‘The World’s first Central Bank Digital Currency Has Come–and Gone: Ecuador, 2014-2018’, Alt-M.
- ‘Stable Coins Analysis: Is there a Viable Vision for the Future?’, Coin Telegraph.
- ‘PH Moving to Test Digital Fiat Currencies with RCBC’s e-Piso’, Entrepreneur.
- ‘eCurrency Mint Limited and Banque Regionale de Marches Launch New Digital Currency in Senegal’, Business Wire.

Central Banking Goals and Functions
- Manage the Nation’s Fiat Money–Supply, Price and Payment Systems
- Oversee Fractional Banking System
- Banker to the Government
- Promote Price Stability and Economic Goals
Fiat Currency
- Represented by Central Bank Notes & Reserves and Commercial Bank Deposits
- Relies upon System of Ledgers
- Accepted for Taxes
- Legal Tender for All Debts Public & Private

Private Sector Stable Value Tokens
- Fiat Collateralized: Tether, TrueUSD
- Crypto Collateralized: BitShare, Dai, Havven
- Commodity Collateralized: Digix, Ekon
- Not Collateralized ‘Seigniorage based’: Basis, Saga

Central Banks, Cryptocurrencies, and Blockchain Technology
- Monitor and Study
- Restrict Use
- Payment System Experimentation
- Central Bank Digital Currency Initiatives

Central Bank Digital Currency
- Central Banks Currently Already Issue Digital Reserves to Commercial banks
- Commercial Banks Provide Digital Currency (Deposits) to Public
- Private Sector is Experimenting with Stable Value Tokens
- Strategic question: Should Direct access to Digital Reserves be Expanded?

CBDC–Opportunities
- Continue Government Provision of a Means of Payment
- Promote Competition in Banking System
- Promote Financial Inclusion
- Address Payment System ‘Pain Points’
- For Some Nations, Avert Sanctions

CBDC–Challenges & Uncertainties
- Financial Stability and Potential to Increase Ease of Bank Runs
- Changes to Commercial Banks’ Deposits and Funding Models
- Effects on Credit Allocation and Economy
- Monetary Policy Implementation & Transmission
- Resilience of Open Payment Infrastructures

CBDC–Design Considerations
- Widely Accessible vs. Wholesale
- Token (e-Money) or Account (e-Deposit) based
- Issuer–Central Bank, Commercial Bank or Others
- Degree of Anonymity
- Transfer Mechanism
- Limits or Caps
- Interest Bearing and Level of Account Services

Digital Currency Initiatives
- Dubai, U.A.E.–emCash project
- Ecuador (more below)–Dinero Electronico–U.S. $ electronic currency
- Iran–Indigenous Cryptocurrency backed by Iranian Rials
- Philippines (more below)–ePiso
- Senegal (more below)–eCFA
- Sweden (more below)–E-Krona initiative
- Tunisia–e-Dinar
- U.K.–Royal Mint Gold
- Uruguay–6 Month Pilot for Digital Uruguayan Peso
- Venezuela–Petro Oil backed Initial Coin Offering

Ecuador–Dinero Electronico
- U.S. $ Electronic Currency
- Direct Liability of Ecuadorian Central Bank
- Operational–2015
- Decommissioned–2018
- Mobile Phone Payment Alternatives Authorized–2018

Philippines–ePiso
- Digital Currency, ePiso
- Announced–2018
- Issued by a Commercial Bank, Rizal Commercial Banking Corp.
- Released along with Mobile Wallet not requiring a bank account
- Platform is Operating under Central Bank, Bangko Sentral ng Pilipinas’ ‘test and learn or regulatory sandbox’
- Software supported by eCurrency Mint Limited of Ireland

Senegal–eCFA
- Digital Currency, eCFA, in West African Economic and Monetary Union
- Announced–2016
- Complies with e-money Regulations of Central Bank of WAEMU
- Issued by a Commercial Bank, Banque Regionale de Marches
- Software supported by eCurrency Mint Limited of Ireland

Sweden E-Krona
- Benefits
  - Continue Public Access to Risk-free Guaranteed Means of Payment
  - Increase Resilience of Payment System
  - Increase Competition of Payment Market
  - Make Digital Payment Services More Broadly Available
- Properties
  - Comprehensive Range of Services
  - Widely Available
  - Robust Transaction Capacity, Performance, Security & Reliability
  - Several e-Identification Solutions
  - User Integrity– through Traceability

Conclusions:
- Central Banks Play an Important Role in Economy
- We Already Live in an Electronic Currency Age
- Payment Systems and Fiat Currency have had Challenges
- Blockchain Technology can be a Catalyst for Change
- Central Banks Monitoring Crypto Finance & Exploring Payment System Uses
- Central Bank Digital Currency debate focused on Opportunities & Challenges
- Central Bank Digital Currency, though, likely will be seen in Adoption

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