VGSF - WU Vienna - LC

David Skeie, University of Warwick

MS Teams 12:00 - 13:00

Organizer WU Vienna

The Fin­ance Brown Bag Sem­inar is held by the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance (WU Vi­enna) and the Vi­enna Gradu­ate School of Fin­ance (VGSF). It serves as a present­a­tion plat­form for PhD stu­dents, fac­ulty mem­bers, and vis­it­ors. An over­view of BBS on the web­site of the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance.

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David Skeie, Uni­versity of War­wick

Di­gital Cur­rency Runs

Di­gital cur­rency cre­ated by the private sector, such as bit­coin, is designed to have a de­termined sup­ply and en­able pay­ments with the premise of com­pet­ing with and sup­plant­ing cent­ral bank fiat money and the bank­ing sys­tem. Cent­ral banks are devel­op­ing fiat cent­ral bank di­gital cur­rency (CBDC) and banks are in­nov­at­ing in re­sponse. This pa­per shows that cent­ral bank mon­et­ary policy in­terest rates paid on bank re­serves must be set dy­nam­ic­ally and re­l­at­ive to in­terest rates (even if zero rates) paid on CBDC to pre­vent the dis­in­ter­me­di­ation of banks, sup­port op­timal firm in­vest­ment and risk shar­ing for con­sumers, and pre­vent di­gital cur­rency runs into CBDC. Private di­gital cur­rency may be pre­ferred over fiat money in coun­tries with high in­fla­tion, but us­ing it out­side of the bank­ing sys­tem re­duces in­vest­ment and risk shar­ing. Banks can re-e­merge by tak­ing de­pos­its and lend­ing in private di­gital cur­rency to in­crease in­vest­ment and risk-shar­ing while avoid­ing fiat in­fla­tion, but these banks risk hav­ing runs into the private di­gital cur­rency. Private di­gital cur­rency is su­per­ior to tra­di­tional hard cur­ren­cies, such as based on a gold stand­ard, for in­vest­ment, risk-shar­ing and fin­an­cial sta­bil­ity.



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