SMU SOE Seminar (December 8, 2023): Money Creation for Distributed Ledgers: Stablecoins, Tokenized Deposits, or Central Bank Digital Currencies?

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TOPIC:

MONEY CREATION FOR DISTRIBUTED LEDGERS: STABLECOINS, TOKENIZED DEPOSITS, OR CENTRAL BANK DIGITAL CURRENCIES?

ABSTRACT Should a central bank digital currency (CBDC) or tokenized deposits be issued to facilitate decen-tralized finance (DeFi) within the crypto space? Would their introduction be a curse or a blessing for stablecoins and illicit transactions? This paper presents a general equilibrium monetary model where money creation is susceptible to moral hazard problems. The impacts of issuing a CBDC or tokenized deposits hinge upon their utilization as a means of payment or as collateral assets in the DeFi sector. In instances where surveillance is low and the interest rate remains moderate, these tokenized currencies tend to be used as a means of payment, thereby crowding out stablecoins. Conversely, when the associated interest rate and surveillance level are high, tokenized currencies tend to serve as collateral, leading to the crowding-in of stablecoins. In terms of social welfare, CBDCs generally outperform tokenized deposits. In some cases, it becomes necessary to prohibit the creation of tokenized deposits in order to implement the optimal CBDC design. Furthermore, it is deemed optimal to apply the lowest level of surveillance to a CBDC to prevent its utilization as collateral by stablecoin issuers, thus economizing on the usage of scarce collateral assets. We also extend the benchmark model to discuss various policy questions. Keywords: Central Bank Digital Currencies, Crypto Banks, Tokenized Deposits, Stablecoins. JEL Codes: E50, E58. Click here to view the paper. Click here to view the CV.
		PRESENTER Jonathan Chiu Bank of Canada
		RESEARCH FIELDS Monetary Theory Banking Payments Economics Digital Currencies
		DATE: 8 December 2023 (Friday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903

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