American Economic Association Examines Public and Private Issued Digital Currencies

Next week in San Francisco, California, the American Economic Association is holding a number of sessions on the topic of ‘Digital Currencies’. On the 4th of January, at the Hilton Union Square, there will be sessions on ‘The Macroeconomics of Central Bank-Issued Digital Currency’, ‘Balancing Public and Private Provision of Electronic Currencies’ and ‘Breaking Through the Zero Lower Bound and Electronic Money’.

Kenneth Rogoff, from Harvard University, will be giving the session on ‘Balancing Public and Private Provision of Electronic Currencies’. In this, Rogoff will examine the decline of paper currency and the benefits of this. In addition, the role of the government in finance and the regulation of cryptocurrencies will be discussed, along with the implications these advances and developments have for the independence of financial organizations, price stability and government debt management.

John Barrdear and Michael Kumhof, from the Bank of England, will present ‘The Macroeconomics of Central Bank-Issued Digital Currency’. As the name suggests, it is from a paper that has explored what would happen to the economy, on a macroeconomic scale, if central banks developed and shared cryptocurrency in any significant amount. The findings of the paper were that an increased steady state level of output and an improvement in central bank’s ability to stabilise inflation and the business cycle would result from this situation. In this regard the report seems positive, and it also mentions the possibility of mitigating some risks to financial stability; however, it also speculates that it could lead to other risks.

A third session that has been revealed is titled ‘Breaking Through the Zero Lower Bound and Electronic Money’ and will be given by Ruchir Agarwal and Miles Kimball, who come from the International Monetary Fund and the University of Michigan respectively. During this session, the option of revitalising the economy with digital currencies will be explored, although not necessarily eliminating the use of fiat currency. The paper has developed this idea and illustrates how this approach could be simply implemented. In this situation, cryptocurrencies would enhance and complement paper money, including allowing the control of interest rate, despite factors that would normally limit this. Methods of returning to ‘normal’ and their implications are also examined. As a final point, legal, political, and economic difficulties of effecting these ideas how they could be dealt with will be investigated.

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