Our speaker will be David Skeie (University of Warwick).

He will give a talk on “Digital Currency Runs”.

Abstract: Digital currency created by the private sector, such as bitcoin, is designed to have a determined supply and enable payments with the premise of competing with and supplanting central bank fiat money and the banking system. Central banks are developing fiat central bank digital currency (CBDC) and banks are innovating in response. This paper shows that central bank monetary policy interest rates paid on bank reserves must be set dynamically and relative to interest rates (even if zero rates) paid on CBDC to prevent the disintermediation of banks, support optimal firm investment and risk sharing for consumers, and prevent digital currency runs into CBDC. Private digital currency may be preferred over fiat money in countries with high inflation, but using it outside of the banking system reduces investment and risk sharing. Banks can re-emerge by taking deposits and lending in private digital currency to increase investment and risk-sharing while avoiding fiat inflation, but these banks risk having runs into the private digital currency. Private digital currency is superior to traditional hard currencies, such as based on a gold standard, for investment, risk-sharing and financial stability.

The talk will take place on November 8, 2022 online at 12 noon.

A direct link to the stream will be posted on our website.