s are a digital version of cash—the physical money issued by central banks. In most countries, their design will resemble existing online platforms, but with a difference: money held as ais equivalent to a deposit with the central bank. In China more than 100,000 people have downloaded a similar trial mobile-phone app, enabling them to spend small government handouts of digital cash, or “e-yuan”. The app, like the paper yuan, depicts Mao Zedong.
The discovery that banks could create money “came early in the development of banking,” said Galbraith. “There was that interest to be earned. Where such reward is waiting men have a natural instinct for innovation.” Most money is created by banks. In America the quantity of broad money stayed the same as a share offor 100 years . Some 90% of it is in private bank deposits. In other economies the share is higher: 91% in the euro area, 93% in Japan and 97% in Britain.
Parallel payment systems, especially supra-sovereign ones, threaten the usual channels for monetary policy, which run through the banks. “It really depends on what happens with regard to digital payments and whether those are entirely outside the banking system,” says one senior central banker. “To the extent that they are, I think that would create a real gap in terms of monetary-policy transmission.
Both fear and opportunity are key motivators for the Bahamas. It would be easy to envisage residents relying exclusively on a convenient currency like Diem, circumventing the ability of the central bank to regulate the money supply. “We want to provide an infrastructure in a very small country that may not be justified on just business considerations if left entirely up to the financial institutions and individuals,” said John Rolle, governor of the Bahamian central bank, in March.
A radically different world, at least in rich countries, would eliminate fractional-reserve banks as the source of most or even all lending. “Narrow banking” is the name for the idea that banks should be required to hold sufficient liquid assets to back all their deposits. It was put forward in 1933 as the “Chicago Plan”, after the devastation of the Depression. It would end the system of fractional-reserve banking by breaking the link between the extension of credit and the creation of money.
If authorities were to curb liquidity and maturity transformation through narrow banking, they might damage growth. But if liquidity and maturity transformation is as useful as many claim, “I think you would just find it replicated elsewhere,” says Peter Fisher of Tuck School of Business at Dartmouth. And in such a case the central bank could find itself in the position of having to intervene in all sorts of institutions other than banks.
Money is already digital. What you mean is crypto money. PS: and it makes no sense at all.
Absolutely.. I predict its happening within 5yrs from today...
It's boring to sit at home alone, looking for someone to spend time with
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