Europe’s Cash Restrictions: A Recipe for Home-Made Economic Instability

Beretta, Edoardo

doi:10.3790/aeq.61.4.373

Cited by 2 publications

(2 citation statements)

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“…phasing out paper currency is arguably the simplest and most elegant approach to clearing the path for central banks to invoke unfettered negative interest rate policies should they bump up against the 'zero lower bound' on interest rates" (Rogoff, 2016, p. 1). Beretta (2014Beretta ( , 2015aBeretta ( , 2015bBeretta ( , 2016Beretta ( , 2017 has nevertheless argued that cash restrictions (and, even more significantly, abolition) would be detrimental for economic growth as well as consumption rates in every country where cash would still be predominant in settling payments. In fact, paper money has taken the place of precious metals in systems of national fiat monies and can be considered a new "gold backing."…”

Section: Peer-to-peer Loans Versus Banks Loans Should Central Banks Be Concerned About Virtual Currencies?mentioning

confidence: 99%

From cash to central bank digital currencies and cryptocurrencies: a balancing act between modernity and monetary stability

Belke

Beretta

2020

JES

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PurposeThe paper explores the precarious balance between modernizing monetary systems by means of digital currencies (either issued by the central bank itself or independently) and safeguarding financial stability as also ensured by tangible payment (and saving) instruments like paper money.Design/methodology/approachWhich aspects of modern payment systems could contribute to improve the way of functioning of today's globalized economy? And, which might even threaten the above-mentioned instable equilibrium? This survey paper aims, precisely, at giving some preliminary answers to a complex – therefore, ongoing – debate at scientific as well as banking and political levels.FindingsThe coexistence of State's money (i.e. “legal tender”) and cryptocurrencies can have a disciplining effect on central banks. Nevertheless, there are still high risks connected to the introduction of central bank digital currency, which should be by far not considered to be a perfect substitute of current cash. At the same time, cryptocurrencies issued by central banks might be exposed to the drawbacks of cryptocurrencies without benefiting from correspondingly strong advantages. A well-governed two-tier system to be achieved through innovation in payment infrastructures might be, in turn, more preferable. Regulated competition by new players combined with “traditional” deposits and central bank elements remains essential, although central banks should embrace the technologies underlying cryptocurrencies, because risk payment service providers could move to other currency areas considered to be more appealing for buyers and sellers.Research limitations/implicationsWe do not see specific limitations besides the fact that the following is for sure a broad field of scientific research to be covered, which is at the same time at the origin of ongoing developments and findings. Originality and implications of the paper are, instead, not only represented by its conclusions (which highlight the role of traditional payment instruments and stress why the concept of “money” still has to have specific features) but also by its approach of recent literature's review combined with equally strong logical-analytical insights.Practical implicationsIn the light of these considerations, even the role of traditional payment systems like paper money is by far not outdated or cannot be – at this point, at least – replaced by central bank digital currencies (whose features based on dematerialization despite being issued and guaranteed by a public authority are very different).Social implicationsNo matter which form it might assume is what differentiates economic from barter transactions. This conclusion is by far not tautological or self-evident since the notion of money has historically been a great object of scientific discussion. In the light of increasingly modern payment instruments, there is no question that money and the effectiveness of related monetary policies have to be also explored from a social perspective according to different monetary scenarios, ranging from central bank digital currencies to private currencies and cash restrictions/abolition.Originality/valueThe originality/value of the following article is represented by the fact that it (1) refers to some of the most relevant and recent contributions to this research field, (2) moves from payment systems in general to their newest trends like cryptocurrencies, cash restrictions (or, even, abolition proposals) and monetary policy while (3) combining all elements to reach a common picture. The paper aims at being a comprehensive contribution dealing with "money" in its broadest but also newest sense.

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Section: Peer-to-peer Loans Versus Banks Loans Should Central Banks Be Concerned About Virtual Currencies?mentioning

confidence: 99%

From cash to central bank digital currencies and cryptocurrencies: a balancing act between modernity and monetary stability

Belke

Beretta

2020

JES

Self Cite

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“…The Greek case is just one paradigmatic example (Figure 2). Cash might be a pure preference in good times but becomes epitome of "safe heaven" as soon as a crisis occurs (Beretta 2015a(Beretta , 2015b(Beretta and 2016. For instance, in January 2002 the total amount of Euro notes and coins in circulation corresponded to € 221.45 bn.…”

Section: Central Bank Digital Currencies and The Irreplaceability Of mentioning

confidence: 99%

From cash to private and public digital currencies. The risk of financial instability and “modern monetary Middle ages”

Belke

Beretta

2020

Econ Bus Lett

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The article analyzes the unstable equilibrium between further developing national monetary systems by means of (private/public) digital currencies while maintaining financial stability as secured by “tangible” store of values like notes/coins. Which are those elements of innovation improving today’s payments system? And, at the same time, which modern trends might destabilize the above-mentioned equilibrium? The paper will identify fundamental monetary principles to be respected, no matter what the innovation level in post-modern economies might soon look like. Cryptocurrencies will be also compared to central bank digital currencies (CBDC), which might soon complement or even replace notes and coins. But, is cash truly a “barbarous relic”? And, which impact might have its legal limitation (as occurring in several European countries)?

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Europe’s Cash Restrictions: A Recipe for Home-Made Economic Instability

Cited by 2 publications

References 5 publications

From cash to central bank digital currencies and cryptocurrencies: a balancing act between modernity and monetary stability

From cash to central bank digital currencies and cryptocurrencies: a balancing act between modernity and monetary stability

From cash to private and public digital currencies. The risk of financial instability and “modern monetary Middle ages”

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