The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
November 29, 2018
Cryptocurrency and Central Bank E-Money
The Atlanta Fed recently hosted a workshop, "Financial Stability Implications of New Technology," which was cosponsored by the Center for the Economic Analysis of Risk at Georgia State University. This macroblog post discusses the workshop's panel on cryptocurrency and central bank e-money. A companion Notes from the Vault post provides some highlights from the rest of the workshop.
The panel began with Douglas Elliot, a partner at Oliver Wyman, discussing some of the public policy issues associated with cryptoassets. Drawing on a recent paper he cowrote, Elliot observed that there are "at least four substantial market segments" that provide long-term support for cryptoassets:
- libertarians and techno-anarchists who, for ideological reasons, want a currency without a government;
- people who deeply distrust their government's economic management;
- seekers of anonymity, who don't want their names associated with transactions and investments; and
- technical users who find cryptoassets useful for some blockchain applications.
Besides these groups are the speculators and investors who hope to benefit from price appreciation of these assets.
Given the strong interest of these four groups, Elliot argues that cryptoassets are here to stay, but he also asserts that these assets raise public policy issues that regulation should address. Some issues, such as anti–money laundering, are being addressed, but all would benefit from a coordinated global approach. However, he observes that of the four long-term support groups, only the technical users are likely to favor such regulations.
Another paper, by University of Chicago professor Gina C. Pieters, analyzed the extent to which the cryptocurrency market is global using purchases of cryptocurrency by state-issued currencies. She finds that more than 90 percent of all cryptocurrency transactions occur using one of three currencies: the U.S. dollar, the South Korean won, and the Japanese yen. She further finds that the dominance of these three currencies cannot be explained by economic size, financial openness, or internet access. Pieters also observed that transactions involving bitcoin, the largest cryptocurrency by market value, do not necessarily represent a country's cryptomarket share.
Warren Weber, former Minneapolis Fed economist and a visiting scholar at the Atlanta Fed, discussed so-called "stable coins," one type of cryptocurrency. The value of many cryptocurrencies has fluctuated widely in recent years, with the price of one bitcoin soaring from under $6,000 to more than $19,000 and then plunging to just over $6,000—all within the period from October 2017 to October 2018. This extreme price volatility creates a significant impediment to Elliot's technical users who would like some method of buying blockchain services with a currency controlled by a blockchain. In an attempt to meet this demand, a number of "stable coins" have been issued or are under development.
Drawing on a preliminary paper, Weber discussed three types of stable coins. One type backs all of the currency it issues with holdings of a state-issued currency, such as the U.S. dollar. A potential weakness of these coins is that they incur operational costs that require payment. Weber observed that interest earnings might cover part of these expenses if the stable coin issuer holds the dollars in an interest-bearing asset. Additionally, charging redemption fees might offset some or all of the expense.
The other two alternatives involve the creation of cryptofinancial entities or crypto "central banks." Both of these approaches seek to adjust the quantity of the cryptocurrency outstanding to stabilize its price in another currency. However, Weber observed that both of these approaches are subject to the problem that the cryptocurrency could take on many values depending upon people's expectations. If people come to expect that a coin will lose its value, neither of these approaches can prevent the coin from becoming worthless.
The question of whether existing central banks should issue e-money was the topic of a presentation by Francisco Rivadeneyra of the Bank of Canada. Summarizing the results of his paper, Rivadeneyra observed that central banks could provide e-money that looks like a token or a more traditional account. The potential for central banks to offer widely available account-based services has long existed. However, after considering the tradeoffs, central banks have elected not to provide these accounts, and recent technological developments have not changed this calculus. However, new technologies may have changed the tradeoff for token-based systems. Many issues will need to be addressed first, though.
- Defining Job Switchers in the Wage Growth Tracker
- Cryptocurrency and Central Bank E-Money
- Polarization through the Prism of the Wage Growth Tracker (Take Two)
- Polarization through the Prism of the Wage Growth Tracker
- On Maximizing Employment, a Case for Caution
- Demographically Adjusting the Wage Growth Tracker
- What Does the Current Slope of the Yield Curve Tell Us?
- Does Loyalty Pay Off?
- Immigration and Hispanics' Educational Attainment
- Are Tariff Worries Cutting into Business Investment?
- December 2018
- November 2018
- October 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth