Commentary

This article provides a comprehensive analysis of the infrastructure that underpins both traditional and emerging payment systems. It establishes a consistent framework for comparing different modes of settlement, distinguishing between public money (cash and reserves) and private money (bank deposits and stablecoins). The paper begins by describing traditional European infrastructure, focusing on the TARGET framework and the two-tier monetary model, where commercial bank deposits expand upon central bank reserves. It details how these traditional systems—including card networks and correspondent banking—ultimately rely on central bank money for final settlement. The paper then explores the disruption caused by blockchain technology and stablecoins, highlighting a fundamental difference: while traditional payments require coordinated interbank adjustments in reserves, stablecoins operate as bearer assets that settle directly on-chain without immediate recourse to central bank systems. Finally, the paper discusses the interaction of these frameworks and the modernization of the two-tier model through tokenized deposits and central bank-run DLT initiatives.

In this article, we discuss a concept that has come to be known as “the singleness of money” – the idea that moneys circulating within a currency area should always be at or close to par with the unit of account, which is typically taken to be defined by central bank money (cash and reserves). “Singleness” has become something of a rallying cry among those opposed to stablecoins - though in a rather simplistic formulation. Recent research and the apparent willingness of users to look beyond (small) deviations in par, when set against stablecoins' other advantages, have brought welcome nuance to the debate. This note argues that it is the avoidance of "large" depegs that should be the focus of regulators, and that emergency liquidity provision to solvent stablecoin issuers in times of stress may be worth considering. Difficulties arising from the cross-border nature of stablecoins suggest that international cooperation among central banks on the provision of such liquidity may be required.

Central bank digital currencies (CBDC) are being considered in many countries - as a novel form of digital public money issued and backed by the state. One of the most extensive and advanced of these schemes is China’s e-CNY or ‘digital yuan’ pilot. It is also one of the most discussed. And yet it is perhaps one of the most mysterious, owing to the reticence of Chinese officials, the complexity of the pilot, and the wide variety of options available to Chinese authorities for future development of the e-CNY and the broader digital asset ecosystem within China. This note takes stock of the current status of the e CNY, emphasizing its core infrastructure, existing use cases and the ‘managed anonymity’ model. Looking forward, how the e-CNY may fit into a digital financial system, how it may underpin non-financial and government activities, and how it may promote the internationalization of the renminibi is also discussed. We argue that external observers may be somewhat exaggerating the individual importance of the e-CNY scheme to the Chinese government. Ultimately, the e-CNY should be regarded as only one piece of a broader, coordinated drive to modernize the Chinese economy and how the government interacts with it.

With advances in tokenization, increased regulatory clarity in important jurisdictions, and further enhancements in blockchain technology, the coming years promise exciting opportunities for stablecoins. However, digital assets in general, and stablecoins in particular, have experienced false dawns before. Is this time different? Perhaps a better question is to ask: what must be done to ensure that this time is different? What can be done to accelerate the hoped-for progress and to ensure that it is sustainable? This paper is intended to start a conversation on what sort of consistent approaches to stablecoin design - and perhaps technical standards - might help promote fungibility, efficiency and safety among stables.

A short and non-technical note critiquing some elements of the Bank of England's approach to stablecoins - with a particular focus on the problematic aspects of their (over)emphasis of the importance of "singleness of money".

A note discussing the concept of singleness of money, with particular emphasis on its relevance for stablecoins and regulation of payments and money issuance.

This note summarizes results from questions on the Digital Pound, included within surveys run by the Confederation of British Industry in April 2024. The key finding is how little knowledge of, or preparation for, the Digital Pound there is among the firms that responded.

The Bank of England launched a consultation on systemic stablecoins in 2023. The consultation was open to all, and I selected a subset of the questions they posed, where I felt a) I knew enough to comment and b) the Bank may have gone somewhat astray. Naturally, there are enormous uncertainties surrounding stablecoin and how they should be regulated, so reasonable people can disagree in this area. However, I felt the Bank was in some ways being too risk averse in the set of backing models they were considering - with possibly severe implications for the incentives for the private sector to innovate and improve stablecoin (and digital custody) technology. I also felt they were too reluctant to consider reasonable ways in which they could enhance the publicly provided infrastructure, such as in providing liquidity facilities. 

A thorough survey and analysis of all (I think) domestic wholesale CBDC pilots as of the end of 2022.

What happens to banks when they unexpectedly lose money? Do they shrink? We find they don't so much shrink, as move their portfolio composition towards less risky (or lower risk-weighted) assets.

A jote from back when people were trying to figure out what constituted a good or a bad monthly jobs growth number for the US economy, during a period when movements in labor force participation was making that somewhat tricky...

Investors have a hard time accounting for uncertainty when calculating how much risk they are willing to bear. They can use economic models to project future earnings, but many models are misspecified along important dimensions. One method investors appear to use to protect against particularly damaging errors in their model is by projecting worst-case scenarios. The responses to such pessimistic predictions provide insights that can explain many of the puzzles about asset prices.

One of my favorite pieces of work. People (including policymakers who should know better) constantly suggest that price inflation will inevitably reflect recent movements in wage inflation and that wage inflation is somehow the be all and end all for forecasting price inflation. Neither is (apparently) correct, at least for the US economy...

Animal spirits are often suggested as a cause of business cycles, but they are very difficult to define. Recent research proposes a novel explanation based on the changing level of risk over time and people’s uncertainty about how the world works. The interaction of these two can lead to significant business cycle fluctuations in response to spikes in volatility. This finding gives researchers an alternative to irrational behavior as an explanation for why swings in consumer sentiment appear to drive the business cycle.

While a fellow at the National Institute of Economic and Social Research I became involved with an interesting and worthwhile project organized under the auspices of Llewellyn Consulting and Gatehouse Advisory Partners. This entailed the publication of a collection of brief essays, on important areas of policy that require re-thinking in the coming years, partly, but not exclusively motivated by Brexit. Each chapter was written by an eminent subject expert and received coverage in The Guardian, The Telegraph and The Sunday Times.