Monetary Transmission & Small Firm Credit Rationing Stable-Coin Configuration Opportunities to Raise Small Firm Credit Flows

Abstract

Credit rationing, especially prevalent for smaller firms, impedes economic growth. A Central Bank aligned “not for profit” managed business to business “Stable-Coin” (“Synthetic Central Bank Digital Currency”) providing trade debt liquidity can lower small firm credit rationing. It raises growth by reducing monetary transmission imperfections consequent upon asymmetric information, commercial bank underwriting restrictions, market power dynamics and regulatory distortion. A simple framework is developed to contextualise small firm credit rationing and associated monetary transmission imperfections with broader credit flows into both the real and monetary sectors. Evidence is presented regarding US monetary transmission efficacy to firms, paving the way to proposing a trade debt business to business focused stable-coin to help close credit rationing gaps. Designed to minimise “moral hazard”, the proposed stable-coin provides an additional monetary transmission channel that supplies interest free trade debt funding to firms to support economic activity and raise growth. In addition to helping close the small firm financing gap, the stable-coin provides policy makers with an additional contra-cyclical monetary transmission instrument to minimise real economic disruption consequent upon financial system crises and liquidity events.