New Paper: Digital cash, the conduct of monetary policy and the monetary transmission mechanism

I have a new paper out at Center for Corporate Governance at Copenhagen Business School.

Here is the abstract:

More and more central banks around the world are seriously considering introducing so-called Central Bank Digital Currencies (CBDC).

In this paper we discuss the implications of introducing digit cash for the conduct of monetary policy and the monetary transmission mechanism.

It is concluded that the introduction of digital cash will not necessitate a fundamental change in monetary policy operations, but it might nonetheless open the door for policy innovations.

The introduction of digital cash will, however, impact – potentially significantly – the size of the money multiplier and might increase the effective lower bound on interest rates.

Both factors will cause an initial tightening of monetary conditions. However, such tightening can and should be offset by a strict commitment to monetary policy rules and through measures to ease legal requirements for liquidity, capital and reserves.

Read the paper here.

New paper: The financial sector, welfare gains and regulaton – A Danish Perspective

I have a new paper out at Center for Corporate Governance at Copenhagen Business School.

Here is the abstract:

Throughout their lives, all citizens come into contact with the financial sector – whether through
children’s savings accounts, home loans or pension saving – and it is impossible to imagine a wellfunctioning market economy without one.

The financial sector plays a core role as a provider of financial intermediation and payment services, generating liquidity, and in assessing, pricing and allocating financial risk. One often overlooked role of the financial sector is its importance for wealth creation and economic growth.

Very extensive research in the field shows a close correlation between the size of a country’s financial sector and its economic prosperity. One way the financial sector contributes to wealth creation is through the provision of payment services.

Calculations in this paper indicate that Danes on average have an annual welfare gain alone improved payment services of least DKK 8-10,000 per Dane. Another significant channel for wealth creation is the financial sector’s abilityto generate liquidity and capital for entrepreneurs, which crucially depends on well-established and defined property rights.

A good legislative framework is essential for a well-functioning financial sector. The reverse applies as well. Failed regulation can not only lead to excessive risk-taking, but it may also inhibit economic growth by limiting opportunities for financial companies to fulfil their beneficial roles in financial intermediation, payment services and liquidity creation.

Read the paper here.

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