Financial Times OpEd: 4 Key Questions about Digital Currency:

July 7, 2021

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The I Theory of Money

Citation:

Brunnermeier, Markus K, and Yuliy Sannikov. “The I Theory of Money”. Working Papers: n. pag. Print.

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The I Theory of Money

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Abstract:

A theory of money needs a proper place for financial intermediaries. Intermediaries create money by taking deposits from savers and investing them in productive projects. The money multiplier depends on the size of intermediary balance sheets, and their ability to take risks. In downturns, as lending contracts and the money multiplier shrinks, the value of money rises. This leads to a Fisher deflation that hurts borrowers and amplifies shocks. An accommodative monetary policy in downturns, focused on the assets held by constrained agents, can mitigate these destabilizing adverse feedback effects. We devote particular attention to interest rate cuts, and study the potential for such policies to create moral hazard.

Last updated on 08/16/2016

Platforms, Tokens, and Interoperability

Citation:

Brunnermeier, Markus K., and Jonathan Payne. “Platforms, Tokens, and Interoperability”. (Working Papers). Print.

Abstract:

Digital money requires a ledger. By integrating this ledger with its other ledgers, a platform can enforce repayment of uncollateralized credit, beyond the ability of the banking sector. However, by controlling interoperability to other platforms' ledgers, an incumbent platform can ``lock-in'' customers and increase its market power. Open banking, which gives users control of interoperability, limits uncollateralized credit. Introducing CBDC as digital legal tender (on an isolated ledger) hurts credit extension, but enhances it when combined with an open architecture public ledger as a ``smart CBDC''.