References

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Without implicating their views, for substantial input we thank Federico Grinberg, Matthew Jones, Alfred Kammer, John Kif, Sole-dad Martinez Peria, and Cedric Tille. For helpful comments we are indebted to seminar participants at Consensus 2019, the Graduate Institute in Geneva, the IMF, and the Norges Bank, as well as generous reviewers at the IMF, in particular Itai Agur, Craig Beaumont, Yan Carrière-Swallow, Giovanni Dell’Ariccia, Kelly Eckhold, Chris Erceg, Ulric Eriksson von Allmen, Vikram Haksar, Dong He, Nigel Jenkinson, Amina Lahreche, Ross Leckow and colleagues in the IMF’s legal department, Aditya Narain, Adina Popescu, Tahsin Saadi Sedik, Nadine Schwarz, Herve Tourpe, and Romain Veyrun. We also thank Jeffrey Hayden and his team for superb editorial assistance.

1

We do not refer to the issuer of a means of payment in this framework in order to identify criteria that capture the essence of different means of payment, without being skewed by the particular forms these take today.

2

The terminology used here deviates slightly from that introduced by Khan and Roberds (2009) of account- versus token-based payment systems. This is to more clearly distinguish this level of classification from the technology used, as the word “token” often denominates a blockchain-based payment instrument. Further confusion arises from a debate over whether blockchain-based technology would be better labeled as account-based since it checks ownership of coins on a ledger (see Milne 2018). For an earlier and important contribution to the discussion of money, see also Kocher-lakota (1998).

3

The term is also used in recent legislation. See for instance Singapore’s 2019 Payment Services Act which emphasizes that “e-money” is denominated in currency, “pegged” to a currency, and is intended to serve as a “medium of exchange.” https://sso.agc.gov.sg/Acts-Supp/2–2019/Published/20190220?DocDate=20190220. See also the European Commission’s 2009 Directive on electronic money, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32009L0110. The European Commission defines e-money in a somewhat more general way, referring to “a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions.” According to this definition, even pre-paid cards (which were originally associated with e-money) must be redeemable.

4

We understand this to be the case for J.P. Morgan’s JPM Coin, which for now is only available to institutional clients. More information can be found on the J.P. Morgan website: https://www.jpmorgan.com/global/news/digital-coin-payments.

5

Warren Weber (2019) offers a useful overview, but introduces terms that are not consistently used by others. See also PWC and Loopring (2019). Notice that the above definition of e-money does not imply that the companies listed here legally issue or create money, operate large balance sheets, or themselves have direct liabilities to their customers. Many place client funds in escrow accounts of balance sheet, as discussed later. Finally, notice also that not all the e-money providers listed above necessarily issue legally binding guarantees of redemptions at face value, despite pledging 1 for 1 convertibility into fat currency on their websites and white papers. Models remain to be tested in stressed markets.

6

Whether or not i-money is actually a form of “money” is open for debate. To economists, money is a stable store of value, a widespread means of payment, and a unit of account. No generally accepted legal definition exists, though most emphasize the ready exchange into currency, as well as denomination in a unit of account and widespread acceptance as a means of payment. Most likely, there would be a continuum of i-monies depending on the assets backing these. Those backed by the safest and most liquid assets, if widely accepted, could be considered a form of money. See He and others (2016) for a detailed discussion of what is money.

7

We do not advance a defnite view as to whether Libra should be considered a security from a regulatory standpoint.

8

Our decision to focus on the nominal stability of value relative to the domestic currency is less defendable in countries with very high inflation in which the means of payment denominated in foreign currency may be preferred independently of other design features.

9

The parallel is made for expositional purposes. Differences remain. For instance, CNAV funds typically do not have the legal obligation to cap investors’ losses, despite striving to do so.

10

If e-money were to become its own unit of account through very widespread use, these risks would become less relevant, as users may no longer seek redemption unless e-money were debased through excessive issuance (in the same fashion that households and firms sell domestic currency for foreign currency). In this case, the new form of money would become akin to a fiat currency, and its issuer to a central bank. Chances of this scenario occurring are higher if the particular form of e-money were required for purchases, such as on a popular retail shopping site. This is akin to the government “generating demand” for domestic currency by requiring that taxes be paid in it.

11

“Taken from Duffie (2019).

13

A thorough discussion of WhatsApp’s and Gmail’s growth is provided on their respective Wikipedia pages: https://en.wikipedia.org/wiki/WhatsApp#User_statistics and https://en.wikipedia.org/wiki/Gmail#History_2, and further discussion is available online such as on https://growthhackers.com/growth-studies/whatsapp.

14

A recent speech (May 2019) by Tobias Adrian touches in these important issues. See also Edwards and Magendzo (2001).

16

Such is the argument in Greenwood, Hanson, and Stein (2016).

17

A seminal paper is Tobin (1987).

18

If they did pay interest on reserves, and if competition in the e-money space forced providers to transfer this interest income to e-money holders, then seignorage can be thought of as being rebated to the population. Seignorage here is defined as the profits made by the central bank by issuing liabilities at a rate lower than that received on assets.

19

The interest paid to e-money providers could differ from the interest paid to commercial banks on reserves, and the wedge between the two rates could be a policy variable in and of itself

20

The term “synthetic” does not imply that the underlying assets—in this case reserves—are not needed, but that CBDC as a form of money can be recreated using different building blocks.

The Rise of Digital Money
Author: Mr. Tobias Adrian and Mr. Tommaso Mancini Griffoli