Digital Currency

Retaining or Overcoming the Bankmoney Regime?
Design principles that make the difference 

 Picture faz.net

Picture faz.net

This paper undertakes an assessment of central bank digital currency issued into public use in coexistence with bankmoney.[1] The guiding question is whether introducing digital central bank money into general use serves to stabilise and thus retain the present bankmoney regime, or whether it can be seen as a step towards a future sovereign money system. The answer to that question depends on the extent to which a number of decisive design principles are going to be implemented. 

As to the terminology, central bank digital currency is also addressed here simply as digital currency (DC), or sovereign digital money. Digital means it it about money on some sort of account, in contrast to cash on hand. Both the term sovereign and currency suppose the money to come from a central bank that is the monetary authority of a sovereign nation-state or community of nation-states, or a currency area's treasury or other state body.

Bankmoney, by contrast, can certainly be referred to as digital money or electronic money, not however as digital currency, because currency, besides referring to the monetary unit of account, traditionally has the meaning of sovereign coins and central bank notes, or, in a now modernised sense, the general meaning of sovereign money in any form.

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Current system designs

Crypto coin or deposit money?

The discussion about digital cash or digital currency has emerged since 2013/14 from the hype about cryptocurrencies based on distributed ledgers and blockchain technology such as Bitcoin and 1.900 more in Sep 2018.[2] Digital currency was imagined to be cryptocurrency denominated in the respective national unit of account. Expressions such as Fedcoin or IMFcoin or RSCoin clearly were meant that way.[3] Various announcements by the Bank of England suggested that RSCoin, followed by the concept of Central Bank Issued Digital Currency (CBDC) were about a special type of cryptocoin to be issued by the Bank.[4]

On the other hand, it was stated that CBDC is intended as a new kind of money to counter the potential challenge of cryptocurrencies without, however, being crypto­currency itself. CBDC might also come in the form of an 'account-based solution', that is, non-cash central bank money-on-account in general public circulation, thus an exten­ded form of central bank account balances, deposit money beyond the conventional so-called reserves (the latter used in interbank transactions only). The expression Fedwire for all clearly refers to a system of accounts for transacting digital currency in the form of central bank deposit money.[5] The Swedish Riksbank's project of an electro­nic currency dubbed e-krona is explicitely conceived of as an account-based system.[6] Subsequent releases by the Bank of England (BoE) left open whether CBDC would be crypto coin or deposit money (i.e. money-on-account).[7]

For a number of reasons crypto­coins based on the blockchain or distributed ledger technology are unlikely to replace deposit money on account anytime soon. Among related problems is the high volatility of cryptocoins, due to their being used as speculative casino tokens rather than a means of payment. Transferring cryptocoins is not fast enough for now, is much too energy-intensive and is thus comparatively expensive. Crypto trading platforms are vulnerable to hacker attacks. There is no guarantee of safeguarding, and legal questions of liability and identifiability are unsettled.[8] For implementing digital currency, tried and tested ways of managing accounts and payments from and to accounts are fully suited.[9]

A. Grym, who is in charge of digitisation at the Bank of Finland, considers the idea of central bank cryptocurrency to be a chimera. If at all, distributed ledgers and blockchains will be used as an alternative, cryptographic way for managing conventional accounts and payments. In this sense, the Dutch National Bank (DNB) experimented in 2015 with DNBcoin for the internal accounting of conventional assets and liabilities.[10] Monetarily and economically there was no change: 'When money is digital, it takes the form of account balances. ... Central bank digital currency would practically mean bank accounts at the central bank'.[11]

CBDC variants of the Bank von England

Barrdear/Kumhof from the Bank of England (BoE) were the first to present the concept of Central Bank Issued Digital Currency (CBDC) in 2016, further elaborated in Kumhof/ Noone 2018.[12] Originally, CBDC was defined as 'a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange … granting universal, electronic, 24/7, national-currency-denominated access' to the central bank balance sheet. CBDC are considered as a way of implementing Tobin's incidental idea for 'deposited currency accounts' from 1987.[13]

In the follow-up version from 2018, 'the use of distributed ledger technology is not assumed'. More importantly, CBDC is available as a universal means of payment only in one out of three variants. The other two variants restrict access to CBDC to financial institutions.[14]

Variant 1. Financial institutions access. In this variant CBDC is used exclusively by monetary and non-monetary financial institutions. Other firms, private and public households are excluded. Banks and other financial institutions are on equal terms as far as CBDC is concerned, however, not with regard to conventional interbank reserves and refinancing at the central bank, which still is the privilege of banks.

Variant 2. Economy-wide access. This variant grants access to CBDC to all actor groups in the economy, regardless of their institutional status.

Variant 3. Financial institutions plus CBDC-backed narrow bank access. This scenario combines variant 1 (exclusive access to CBDC for financial institutions) with a 100%-CBDC-reserve on customer deposits in special accounts. These accounts would be provided by banks and other CBDC-payment services. Entries in such accounts do not represent CBDC, or, as the authors say, they represent 'indirect CBDC' in that a respective bank promises to keep a 100%-CBDC-reserve on such deposits. It is not explained how the envisaged 100%-CBDC-coverage would be ensured operationally, or why falling back on the approach of 100%-banking from the 1930s would be a good idea rather than consistently keeping up the present sovereign money approach (CBDC is sovereign money) by facilitating direct customer access to a CBDC account.

All three variants use CBDC in a new account and payment infrastructure separate from the continued and unchanged split-circuit two-tier circulation of central bank reserves and bankmoney.[15] CBDC accounts are transaction accounts only, no giro accounts for crediting bankmoney. Whether interbank circulation must entirely be carried out in reserves or can also use CBDC remains unclear.

The three variants of the BoE's CBDC model feature the following design principles.

a)  CBDC accounts und reserve accounts are kept apart in two different infrastructures. CBDC transactions are thus equally kept apart from the existing fractional reserve banking and RTGS payment systems.[16] CBDC and reserves, even though representing the same kind of central bank deposit money (money-on-account), are not fused into one common circuit. They are not even convertible into each other.

b)  Non-bank money users can possibly change bankmoney for CBDC, but they have no formal right to have done such a swap. Banks are not obliged to offer CBDC accounts. Central banks are free, anyway, to accommodate demand for additional CBDC or not to do so.

c)  CBDC are interest-bearing, in that the central bank pays a deposit interest on them. This may include positive, zero, and negative interest rates.    

d)  The central bank issues CBDC exclusively to financial institutions by purchasing securities from them, particularly sovereign bonds. 

Compared with the first version of the CBDC concept, the latter has come out rather complicated. It is not exactly obvious how things would improve in a system which adds still more complications on top of the already quite complicated split-circuit reserve system, or even graft a partial full reserve system onto the continued fractional reserve system. The additional complications in question are attributable to the obvious intention to keep the existing bankmoney regime largely unchanged, and, in a way, even protect it against CBDC. Introducing CBDC for widespread public use and making sure at the same time that CBDC has a preferably small circulation among only a few actors, is a blatant contradiction in itself – the more so as principle d) puts the decision on the market penetration of CBDC primarily into the hands of the banking sector and other financial institutions. What would they do with CBDC, if at all, other than putting the major part of it into non GDP-contributing financial transactions? And why would they be interested in granting access to CBDC to a wider public?

Principles a) and b) aim to impede mass migration from bankmoney to CBDC, or CBDC-covered deposits, respectively. CBDC thus cannot credibly claim to compete with bankmoney. Apparently, there are fears that bankmoney might soon fall out of favour if there is the alternative of CBDC. Therefrom, CBDC is offered as anything but the sovereign money in general use which it basically ought to be. The notion of sovereign money includes its universal availability as legal tender in general use. This excludes complicated restrictions on its availability to particular actor groups, limitation of its quantity in relation to other means of payment, and delimitation of its uses according to particular interests.    

As regards the variable interest yield of CBDC, according to the authors this aims at clearing the market at the respective point of equilibrium[17] – whoever believes to know what and where in practice this ideal-world point actually is. In contrast, it is clear that the interest on CBDC is aimed at controlling the ratio between bankmoney and CBDC. It is less clear, which interest rate is supposed to re-adapt to the other: the deposit interest on bankmoney set by the banks reacting to the interest on and amount of CBDC; or the deposit interest on CBDC set by the central bank reacting to the interest on and amount of bankmoney?

The e-krona concept of the Swedish Riksbank

The e-krona concept was published by the Riksbank, the Swedish central bank, in September 2017. It was conceived of from the beginning as a 'register-based e-krona', i.e. an account-based approach.[18] The 'register' is a current account at the Riksbank, with individual accounts for each holder of e-krona. These accounts are a position on the central bank's balance sheet, accessible day after day around the clock (24/7). The accounts, nevertheless, are envisaged as a new infrastructure for managing e-krona balances and transactions, in addition to the existing account infrastructure and payment system of the central bank. Interbank payments would still be carried out by circulation of reserves. Conversion of reserves and e-krona into each other would however be possible. Analogous to cash, e-krona are not interest-bearing.       

The project was triggered by the fact that the decline of cash is well advanced in Sweden. The Riksbank, however, feels obliged to provide the nation with central bank money for public use, if no longer in the form of solid cash, than in the form of e-krona, that is, electronic or digital sovereign money-on-account. Equally desirable, of course, is the perspective of conventional instruments of monetary policy becoming more effective again as the share of e-krona in the money supply would grow in relation to bankmoney.      

As a supplement to e-krona accounts, provision is made for a 'value-based solution' by way of swipe cards or mobile phone apps.[19] This allows offline payment with the help of reading devices when there is no online connection, or for persons who cannot or do not want to maintain an account. The balances on the cards or mobile apps are supposed to be usable like prepaid balances in mobile phones or travel cards in public transport. If the card or mobile is lost, the e-cash is gone just as if a purse is lost or stolen. The e-krona balances available via cards or apps are limited according to existing limits for making payments in cash. In Sweden this is an amount equivalent to 250 Euros.

The central bank undertakes to supply e-krona accounts to everyone who wants to open one, or rather, it obliges the banks to do so; one reason for this is also because of the low population density in extensive parts of the country. Conversion of bankmoney into e-krona, and vice versa, is legally ensured. The central bank as account and payment system provider as well as the banks and other payment service providers as system users continue to act as a trusted third party, not, however, as bankmoney intermediaries by way of interbank reserve circulation, but as fiduciary e-krona account managers of their customers, whereby e-kronas are directly transferred from payer to payee. 

E-kronas are meant to be used primarily by private households and small firms, thus for retail rather than wholesale payments. Putting a ceiling on the amount of payments, though, is not considered. Only the balances on swipe cards or mobile apps would be limited.

The basics model of the Bank of England

Staff of the BoE have presented yet another concept paper whose design reconnects to the original, basic CBDC concept of the BoE.[20] This, say, basics model is based on, or at least overlaps with, variant 2 in the above CBDC concept by Kumhof/Noone. The approach is account-based. CBDC would be a universal means of payment, available for all actor groups in the economy without particular ceilings on the quantities available. Rather than being seen as an equivalent to cash, CBDC are introduced as a reserves-like means of payment in general public use. Reserves and solid cash as well as bankmoney would be convertible into CBDC at par, or vice versa. CBDC enter into circulation through the central bank paying in CBDC for open-market purchases of securities, primarily sovereign bonds. CBDC are interest-bearing.[21] Negative interest rates are briefly discussed in the paper as a motive for introducing CBDC, but are neither recommended nor rejected.

The project paper stresses the importance of CBDC for strengthening monetary policy. The reference rate of interest, as is supposed, would be the interest on CBDC rather than, respectively, the base rate on reserves or the interbank rate. The interest on CBDC as the general point of reference would improve transmission of central bank rates on banking, finance and the economy, because the CBDC rate immediately affects a greater number of actors, not just the fractional refinancing of banks.[22] The effectiveness of CBDC interest policy depends on the degree of market penetration of CBDC. The more widespread CBDC and the higher the share of CBDC in the money supply become, the more an improved transmission can be assumed.  

Another aspect the authors bring up for discussion again, is helicopter money, this time as a channel for the issuance of CBDC. Unconventional measures of quantitative easing (QE) promise to be much more useful than QE just for finance, as helicopter money directly feeds into the real economy.[23]  

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Advantages of digital currency  

Some authors imagine the introduction of digital currency side-by-side with bankmoney to be a smooth process, as a moderate alternative to what is seen as the radical approach to sovereign money reform by abolishing the bankmoney privilege overnight. In actual fact, however, the coexistence of bankmoney and non-cash central bank money in public use poses a number of questions which are virtually absent in a complete reform. First, however, for the advantages, applying primarily to the Swedish e-krona concept and the basics model of the BoE, not or less so to variants 1 and 3 in Kumhof/Noone.

Safety, trust and acceptance
With regard to the safety of sovereign digital money there is no difference between a gradual and a radical approach. CBDC, as central bank money on account, is as safe as cash, even more so with regard to loss, theft and technical liability for existing account balances. In today's split-circuit payment systems there is still some counterparty risk, whereas this does not exist in digital currency transactions directly from payer to payee, much as with payments in cash.[24]

The introduction of digital currency realises a special aspect of the Currency School principle of separating money and credit, that is, more specifically, separation of the customers' money from a bank's or service provider's own means. To the extent to which the money supply consists of 'unvanishable' sovereign digital currency, banks need not be rescued in a crisis. The more digital currency, the more trust in the safety, stability and functionality of the money system.

Against this background there is no doubt about public acceptance of digital currency. Firms and people would chose to maintain a bank giro account, or a currency account or both side by side. Acceptance would be the same as is the case with government coins and central bank notes. Acceptance would also be restored where taking cash is refused today, for example at the tax office.   

Comfort and costs
Regarding comfort and costs, there is also no difference to be expected between a partial or full sovereign money supply. Over time, CBDC might even prove to be cheaper than bankmoney, because with direct transfer of digital currency from payer to payee the costs of intermediary reserve circulation are eliminated.   

The willingness to pay for safe money varies with economic sentiment. In times of crisis and increased uncertainty, actors, particularly those with large liquid money balances, are prepared to pay extra for more safety. In times of unworried normal mode, however, safety is less urgent and cost sensitivity comes to the fore. The result might be an accordingly changeable preference for bankmoney or central bank money. Under extreme conditions this might pose a problem, but not normally, much as a cyclical degree of liquidity preference is not normally a real problem.     

Another cost aspect relates to the funding costs of a growing supply of digital currency. A growing amount of bankmoney converted into digital currency means a continued extremely low fractionality of reserves, but on a shrinking share of bankmoney, and at the same time full funding of the growing share of digital currency, thus higher funding costs – which, however, are stretched over time and distributed across all banks. By and large, the funding costs involved would be of a same amount as if people were increasingly paying in cash again rather than making cashless payments. Handling digital currency, though, is less cost-intensive than handling coins and notes. Around 1900, banks had no problem at all in dealing with a cash-to-bankmoney ratio of about 60:40. Why should they have problems when over time the ratio of digital currency to bankmoney would come closer again to 50:50 rather than the present ratio of 5–10% solid cash to 90–95% bankmoney?

Enhanced effectiveness of monetary policy
Another advantage of the general circulation of digital currency is improved effectiveness of conventional instruments of monetary policy as set out above. Today, the supposed transmission of base rate policy onto finance and the real economy has become rather weak. With a growing share of digital currency in the stock of money, the quantity lever of interest rate policy would increase, too. This alone is reason enough to introduce central bank digital currency.

Increased seigniorage
An advantage of sovereign money-on-account particularly for the public purse is an increasing amount of seigniorage, in proportion to the share of sovereign money in the money supply. No matter how digital currency enters circulation – like cash today in the Swedish e-krona model, or against sovereign bonds as in the English CBDC concept, or through public expenditure as is one option in the basics model of the BoE – banks will have to finance that money in full. Even under conditions of still predominant bank­money this will result in an increased amount of seigniorage.

Starting point for asset-side accounting of central bank money
The introduction of digital currency would be a suitable opportunity to change accountancy for sovereign money on a central bank's balance sheet. The change would be to enter sovereign money into the books as an asset only, thus not only coins as is the case today, but also notes and reserves, and in addition now also central bank digital currency in public use. Notes and, respectively, reserves and digital currency would no longer appear to be a liability of the central bank which in fact has become obsolete under conditions of pure fiat money. The change requires a few modifications in central bank accountancy.[25]

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Real and false problems with the coexistence of bankmoney and digital currency

Continued bankmoney creation as a major source of instability
Any coexistence of central bank money and bankmoney comes with a fundamental problem, which poses itself by the continued existence of the bankmoney regime as such. Pro-active bankmoney creation and split-circuit fractional reserve banking continue to exist, including all sorts of problems and self-escalating dynamics related to it, such as persistent overshoot of money, credit and debt, recurrent financial market failure and ensuing proneness to crisis, the inherent non-safety of bankmoney, not to forget the centrifugal distribution of income and wealth. Digital central bank money in important volumes can mitigate those dynamics, but not stop it, the more so when it is not the central bank, but the banks who in the first instance decide on whether and how much money is created.

Technical compatibility of bankmoney and digital currency
Different means of payment from different originators have coexisted throughout the times, normally without technical complications. This has certainly been the case with regard to the coexistence of sovereign cash and bankmoney. It will not be different with regard to the future coexistence of digital currency and bankmoney.    

Central bank system designers are still of two minds about a number of questions, such as, for example, whether to keep digital currency separate from or integrated with reserve circulation; or whether access to and the stock of available digital currency should be restricted in some way or left unrestricted in an open market process. Independently, and in a purely technical sense, running bank giro accounts side by side with accounts for holding and transacting digital currency – in brief, currency accounts – is not a concern.

For the banks and other payment service providers, carrying out payments between customer currency accounts is neutral. The money is transferred directly from a payer's currency account to the recipient's currency account, without involving any intermediation by reserve circulation. A transfer from currency account to bank giro account is made in the same way as transfers are made today from a government (= non-bank) reserves account at the central bank to a customer bank giro account at a bank: the payee's bank receives the reserves, while the payee's giro account is credited the same amount in bankmoney. In a transfer in the opposite direction, from giro account to currency account, the payer's bank giro balance is debited, and thus deleted, while the amount involved is transferred from the bank's central-bank reserves account to the payee's currency account.

The reserves a bank receives in payments from currency accounts to giro accounts are not entirely disposable for that bank, for it needs reserves of about the same amount for carrying out payments in the opposite direction from its customers' giro accounts to currency accounts. On balance of current outflows and inflows of reserves, a significant surplus or deficit is unlikely to occur. Outgoing and incoming payments offsetting each other is one mechanism behind fractional reserve banking, others, for example, include the fact that at any point in time bankmoney is used by only a subset of customers, to only some partial quantity, and at different times. Should some deficit occur nonetheless, it is financed by intraday overdraft in the central bank's RTGS payment system or by taking up money at the interbank market. Thus far, payment transactions come with neither an advantage nor a disadvantage to the banks.   

Impaired ability of banks to lend and invest?
A concern occasionally expressed is that with a growing share of digital currency 'deposit-funded bank credit might be undermined'.[26] However, such an argument about banks lending out customer deposits misses the point. Under split-circuit reserve banking, deposits are not loanable funds and banks are not financial intermediaries, but creators and cancellers of bankmoney. Banks may attract additional reserves by drumming up external customers. This comes with a temporary financing advantage, but does not directly affect bank credit extension. Balances in a giro account are not taken from somewhere, but created in the moment they are entered into the books, as they are deleted when the account is debited. Caring about fractional refinancing of transactions, as far as necessary, is the business of a different banking department. This invalidates the assumption that 'with too widespread a CBDC, it might threaten the banks' lending activity, if banks cannot use deposits for that purpose'.[27] CBDC does not threaten banks' lending, because – besides the fact that CBDC can be lent - split-circuit reserve banking continues to exist, thus the bankmoney privilege to pay out a loan to nonbanks, or pay for a purchase from nonbanks, with self-created bankmoney – which in fact is a fundamental problem, in that it recurrently produces monetary and financial overshoot and crises.

With digital currency, contrary to bankmoney, banks can actually borrow currency account balances from their customers, as loanable funds indeed. The more there is digital currency in circulation, the more banks can finance business to be done in digital currency through pertinent channels: reflux of principal and sales receipts of various kinds (which alone provides for much of the means necessitated), short-term borrowing of digital currency from customers (savings or time contracts or other), issue of bonds and other bank debentures, borrowing at the money market, and finally also central bank credit made out in digital currency.     

The only problem which may arise is a temporary shortage of central bank-eligible securities, if too much bankmoney has to be converted into digital currency in too short a time, for example, if too many borrowers ask for bank loans to be paid out in digital currency rather than bankmoney. Structurally, this is about the same problem as a bankrun, that is, the problem of basically insufficient bank liquidity in any bankmoney regime based on fractional reserves, the problem posing itself as soon as there is a deviation from the normally-distributed mode of operation.  

Risk of bank runs
Not surprisingly, the biggest fear of CBDC designers is mass migration from bank giro accounts to digital currency accounts, thus a veritable bankrun. This remains a standing problem indeed – not, however, a problem of digital currency (i.e. central bank money = sovereign money), but the fundamental problem of bankmoney, which is unavoidably inherent in fractional reserve banking and the false identity of money and credit. The bankrun is bankmoney's fateful writing on the wall, always shining through from the background of that system which recurrently needs new auxiliary supports so as not to be constantly threatened with collapse. It is revealing with regard to the biased problem perception of most statements on this issue that systemic instability of the coexistence of bankmoney and digital currency is attributed to the introduction of digital currency rather than to the continued existence of bankmoney.          

The possibility of a bankrun apparently serves as a cause-reversing excuse for refraining from an unreserved, market-led introduction of CBDC. The pretext reflects the prevalent identification of most central bankers with the existing bankmoney regime, still believing it is them, the central bankers, who lead the system rather than the banks who actually do. Therefrom, and contrary to own rhetoric, most central bankers today are rating the banks' interest in conserving the bankmoney privilege higher than the public interest in safe money and more stable finances.[28]

At this, the potential for bankrun is unduly exaggerated. It is well known that bankruns do not occur in a situation of business as usual. They only occur when an individual bank or many banks enter a state of crisis. Sovereign money and bankmoney have coexisted for over 300 years, at first as private banknotes existing side by side with precious metal coins, later on until today as bankmoney-on-account (deposit money) existing side by side with central bank money (cash). What would be different if that coexistence continues with bankmoney-on-account side by side with sovereign money-on-account? Not too much in the first place, maybe more over time as digital currency would spread, while banking and financial crises, too, will continue to occur, including the threat of bankruns and the continued constraint to bail out systemically relevant banks.   

In a landslide migration from bankmoney to digital currency, the banking sector would hardly be able, in the short run and in a regular way, to procure enough eligible securities for taking up enough money so as to fulfil its largely 'empty' promise to convert bankmoney into digital currency. Such a situation would be destabilising for the banking sector and finance in general. Central banks would have little choice but to resort to QE again. However, with currency accounts being available they could do it in a more effective and sensible way than has been the case with QE for finance during the 2010s.     

Firstly, central banks should pursue policies of QE for real economy, for example through helicop­ter money for public expenditure or a citizens' dividend. Secondly, central banks should stabilise banks and finance not by trying to stop the bankrun, but: by supporting the process. To this end, they should grant special credit to banks for the conversion of bankmoney into digital currency. In a state of financial emergency this would have to be unsecured book credit, involving a heightened risk for the central banks as far as banks would go bankrupt. At the same time, however, the measure by itself would effectively help prevent banks from going bust.

In an emergency, special conversion credit can be granted at zero percent interest, on condition the principal be paid off with priority as soon as there are re-conversions of digital currency into bankmoney; or else, in the absence of re-conversions, to substitute regular interest-bearing central-bank credit for the special conversion credit step by step according to a long-term schedule defined by the central bank.          

The special conversion credit would have to be budgeted maximally to an amount equal to the remaining stock of bankmoney, even though not necessarily be realised to that amount. The sum involved would represent only about a quarter or a fifth of the vast sums of QE for finance during the 2010s. The banks would be rescued once again, not however for the sake of rescuing them and their bankmoney and maintaining payment transactions in general, but for supporting a growing stock of digital currency that would not have to be rescued thenceforward.  

Deposit interest on DC to control its ratio to bankmoney
In the English concept variants, DC is interest-bearing. In the Swedish concept, by contrast, the e-krona does not yield interest. Why after all would DC be interest-bearing? Interest is paid on credit and debt positions, or say more generally, on promissory items. DC, however, is not a promissory item. It is positively existing sovereign fiat money in its own right, high-powered base money that does not need coverage by another kind of money or collateral.

What then is the reason for DC be interest-bearing? One reason given is 'to clear the market'.[28a] Whether this refers to the market demand for DC or the central bank supply of DC is not explained. Notwithstanding this, what deposit interest on DC really can do is complementing the deposit interest on bankmoney that banks are likely to pay.                                 

Under conditions of business as usual it is not clear to which extent the public would actually change from bank giro accounts to currency accounts, or have currency accounts in addition to bank giro accounts. Banks will certainly not fail to react to a shift towards currency accounts. For example, banks can be expected to offer high-enough deposit interest (as was formerly paid on private banknotes) to prevent deposits from draining away. Furthermore, bank giro accounts might be offered free of charge, while currency accounts would be run at a cost-covering or even profitable price.

With the same method, to counter a shift towards currency accounts, the central bank would set a rate of deposit interest on CBDC below the deposit interest banks are paying on bankmoney. If, conversely, a central bank wants to support a shift from bankmoney to CBDC, the latter would fetch higher deposit interest than deposits on bank giro accounts. This kind of interest rate policy would to a degree certainly allow for exerting influence on the proportion between bankmoney and CBDC in a side-by-side constellation.

State warranty of bankmoney
Irrespective of the question of interest payments on digital currency, governments will have to decide on whether or not to continue with standing bail for bankmoney. From an ordoliberal point of view, public guarantees of private money are unacceptable, as is tolerating private money denominated in the national currency. Among the fundamental auxiliary constructions for stabilising the inherently unstable bankmoney regime are govern­ment guarantees of bankmoney, the extensive implementation of the central banks' role as lenders of last resort for the banking sector, as well as the state's predominant use of bankmoney rather than reserves and cash. As long as these crutches are maintained and banks pay high-enough deposit interest on bankmoney combined with low or no account fees, there is, under conditions of business as usual, no urgent need for customers to switch accounts. It thus remains unclear under such conditions whether a significant shift from bankmoney to digital currency would take place at all.                

The situation becomes different when there is a sense of uncertainty and crisis. The safety of money is then valued higher or even given top priority. Hence the phenomenon of a cyclical shift from money and purely financial assets into real assets. With the alternative of digital currency available, a more or less pronounced run on bankmoney and its conversion into digital currency can be expected – despite state guarantees and central bank support for bankmoney, which in the eyes of many an actor are not entirely convincing anyway, and despite higher deposit interest on bankmoney which, given changed priorities, would not thwart a flight from bankmoney.

Parity of bankmoney with digital currency. A new type of Gresham situation?
A further question relates to the parity of bankmoney with sovereign money. With digital currency coexisting with bankmoney, would the present 1:1 parity of bankmoney with central bank money endure? During the last 100–150 years of bankmoney backed by the central bank and government that question did not arise anymore, but had always been a relevant issue prior to that state of affairs.  

Today, the 1:1 parity between coins, notes and reserves arises from the fact that all of these monies stem from the central bank, residually from the treasury, and are issued into circulation as legal tender, 1:1 accounted for by the central bank and exchanged for one another. What, however, about the parity between bankmoney and central bank money? One reason given for their 1:1 parity is that in the split-circuit reserve system a transfer of bankmoney is accompanied by a transfer of reserves of the same amount. Whether that reasoning really holds can be doubted in face of the extreme fractionality of the reserves base, the more so in a crisis. Moreover, a central bank cannot exchange its own digital currency against bankmoney. A more obvious reason is the governments' and central banks' promise to support the bankmoney and stand bail for it. Moreover, cash and bank deposits have so far been taken 1:1 for the suggestive fact that bankmoney is denominated in the national currency. If, however, there were too be no more or significantly reduced state guarantees, and at the same time the alternative option of digital currency, this might in fact open up the perspective of a new Gresham situation.[29]

Gresham's law dates back to the 16th century and states that bad coins with reduced silver content were driving good coins out of circulation. People tried to get rid of bad coins while keeping the good ones. As a result, coins of a same face value circulated at unequal parity. It was difficult even for well informed merchants to keep track of the different rates. Today one would say that transaction costs in a Gresham situation are much higher than in a system of 1:1 parity.

As far as safety of modern money is concerned, bankmoney is of the 'bad' sort because of its inherent risk in comparison to safe and secure 'high-powered' central bank money. People could thus try to be paid in digital currency while making their own payments in bankmoney, using the 'good' currency also as a store of value.    

Limited access to digital currency as well as limitations in its quantity and intended uses as conceived of in current CBDC concepts serve to keep down demand for digital currency or even block a potential bankrun – which, however, is exactly what fosters a new Gresham situation, because it is that sort of exclusiveness of digital currency which contributes to its appreciation against bankmoney.         

As a result, bankmoney might circulate below par to digital currency. Hedge funds might speculate on it as Soros once did against the pound.[30] But things here are not as obvious as it would appear. In Chile, for example, many goods are sold at a higher price when paid in cash, and, respectively, cheaper when paid in bankmoney via credit cards or bank transfer. In any case, the economy is likely to get along with unequal and even variable parities, as it is able, after all, to cope with highly volatile foreign exchange rates. Particularly 'efficient' is neither one.

There is the model of a general trilemma of monetary policy, inspired by, but different from, the special Triffin dilemma of the U.S. dollar as the world lead currency. The general trilemma is based on three goals: free cross-border capital mobility, free exchange rate of the currency, and autonomous monetary policy. The trilemma assumes that at most two out of the three goals can be attained at any one time, while the third has to be given up. This means, for example, that under conditions of free cross-border capital mobility and free currency exchange rate, the only thing left to a central bank is to accommodate what market dynamics demand and forgo any other policy goals and measures – or take measures to restrict capital mobility and influence or even administer the exchange rate, so that these are no longer free.                

O. Bjerg has applied the monetary policy trilemma to the coexistence of bankmoney and digital currency.[31] The three target dimensions are
-    1:1 parity between bankmoney and digital currency
-    unrestricted mutual convertibility of the two kinds of money
-    autonomy of a respective central bank's monetary policy.

How far the trilemma involved here is absolute remains open to question. It appears to be plausible, however, that the more one or two of the three goals are to be attained, one has to cut back on the remaining one or two. If a central bank wants to exert control over the ratio of bankmoney to digital currency, it cannot completely decontrol their convertibility. Restricted convertibility or limited access to digital currency put at risk the 1:1 parity of bankmoney, and it cannot be taken for granted that state guarantees of bankmoney can fully eliminate that risk. If, to the contrary, free mutual convertibility of bankmoney and digital currency shall be ensured, the central bank has little choice but to accommodate the ensuing demand for digital currency or reserves.

How acceptable or unacceptable such trade-offs would be depends on the interests involved. A central bank has control just over its own money, not, however, over bank­money. But if the market is demanding the substitution of digital currency for bankmoney and the central bank accommodates rather than deters that demand, and be it through unconventional measures of quantitative easing, the central bank will over time achieve what it ought to achieve: control over domestic money creation and the ability to effectively readjust the stock of money.

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Design principles that make the difference 

After having discussed the advantages, problems and false problems of a parallel existence of bankmoney and digital currency, it can now be identified which design principles would maintain the perspective of digital currency gradually leading towards a sovereign money system rather than conserving the present bankmoney regime.   

Securing countrywide access to currency accounts
The first of those design principles is committing the central bank to provide a general supply of currency accounts, or rather, the central bank committing banks and other payment service providers to do so. Currency accounts must be offered countrywide on demand. This can be achieved, as in the Swedish e-krona model, by building up an infrastructure for the management of currency accounts and making payments in digital currency. The central bank or an operating company on behalf of the central bank would run the system, that is, be the system provider, while banks and other payment service providers would be system users.

Merging digital currency and interbank reserves into one circuit
Keeping reserves and digital currency apart from one another, as is suggested in the models discussed, is not plausible and unlikely to be sustained over time. No matter in which function – as a fractional base for transferring bankmoney, or as digital currency in public circulation – either way it is about the same kind of central bank money-on-account. The terms 'reserves' and 'digital currency' do express different functions and owners, but there is no difference regarding the form and quality of the non-cash central bank money involved.

The design principle is thus to link bank reserves to non-bank digital currency, thereby creating a single circuit. Reserves and a bank's digital currency ought to be interchangeable or reciprocally transferable. This does not mean blurring the difference between a pure transaction account (such as state bodies have today, and firms and private persons would have in the future) and a bank's transaction account which at the same time is also a refinancing account for doing business with the central bank. Today's excess reserves can nevertheless be treated like general digital currency. This does not impair monetary policy. Simply, the question does not arise of whether there would be a different interest rate on reserves and digital currency, and which one would be more important.

Independently, a minimum reserve requirement may still exist, or not. Minimum reserves should in fact be abolished on this occasion, as financially more advanced countries have done for a longer time (among them the countries of the British Commonwealth, Hong Kong, Denmark and Sweden. Belgium and Luxemburg, too, did not require minimum reserves prior to the introduction of the euro).

Digital currency as a universal means of payment: no restrictions on access, relative quantities and use
Digital currency best serves its function as public money-on-account when it is unrestricted, a  universally accessible and usable means of payment, regardless of particular actor groups or volumes of payment, for the settlement of all sorts of private and public debt. Digital currency thus should not be subject to limitations regarding access or availability, relative quantity and uses. The Swedish e-krona concept and the basics model of the Bank of England basically start from such an assumption.

Full convertibility between bankmoney and sovereign digital currency  
Subsequently, digital currency must be freely convertible and re-convertible into cash and bankmoney. Specifically regarding banks, as said above, their excess reserves and holdings of digital currency must also be interchangeable.     

Issuance of digital currency not only via the banking sector
The Swedish and English concepts discussed above continue the practice of issuing central bank money (hitherto reserves and cash, now then also digital currency) by way of credit against collateral. In this way, money creation continues to be entirely determined by the banking sector's pro-active credit extension and fractional demand for reserves.    

Supposing the share of digital currency would grow over time, this might sooner or later result in frictions with regard to the available volume of eligible securities, particularly sovereign bonds, needed as collateral. Therefrom, it might be unavoidable to resort to said unconventional measures, for example, even though not necessarily, the special central-bank conversion credit granted without collateral. Furthermore, in a sovereign money perspective, issuance of digital currency can and ought to be equally possible in a direct way bypassing the banks. That direct way would include measures like helicopter money or QE for real economy in combination with revising Art. 123 (1) and (2) TFEU, also known as the Lisbon Treaty. In its present form this article is on the prohibition of direct monetary financing, while permitting it indirectly.

Public bodies to use currency accounts
Payment transactions of public bodies are carried out today for one part via transaction accounts with the central bank, the other part via bank giro accounts. It is among the absurdities of the present bankmoney regime that state bodies require to be paid in private bankmoney rather than in the sovereign currency of the state's central bank. Public bodies should thus be obliged to transact via currency accounts rather than bank giro accounts. It has to be considered, however, that the state's acceptance of bankmoney is a key pillar in the state's warranty of bankmoney. Should that pillar be taken away too fast, with public expenditure at 35–55 per cent of GDP depending on the country, bankmoney would be undermined in a way similar to a run on bankmoney.   

Public bodies across the board could nevertheless begin to maintain currency accounts in addition to bank giro accounts, slowly but steadily increasing their use of digital currency. That would contribute to ensuring digital currency circulation to an important extent. It then depends on the course of things whether and how far public bodies would end using bank giro accounts over the years, shifting all payments, in particular taxes and social security contributions, to digital currency. 

For private money users (financial institutes, firms, households) the choice for bank­money or digital currency, or both of them, remains generally optional. This presupposes transfers between bank giro accounts and currency accounts to be possible in both directions.

Withdrawal, at least substantial reduction, of state warranty of bankmoney
Central bank support and state guarantees of bankmoney are major pillars of the bankmoney regime. This of course also applies to bankmoney in a side-by-side constellation with digital currency. The support relates to the preparedness of central banks to refinance banks at any time and at any amount deemed necessary, 'what­ever it takes' according to the proverbial statement by M. Draghi, then ECB President, in 2012. Governments on their part tend to recapitalise systemically important banks if need be. Moreover, governments stand bail for huge amounts of bankmoney, up to 100.000 to 200.000 euros for each customer bank account, depending on the country. In a medium-sized country of between 50 to 150 million people, this might potentially sum up to several billion euros. If ever really tested, a national government and parliament would be unable to muster such sums in a short period of time. A central bank, however, is able to – in the course of a presumably involuntary transition to a sovereign money system…    

As long as such guarantees are kept up, combined with basically unrestricted pro-active bankmoney creation, one cannot seriously expect the introduction of digital currency to eventually lead to a sovereign money system. Therefrom, another design principle is to cancel state guarantees of bankmoney, or at least significantly reduce them.[32] Independently, existing legal requirements for deposit insurance or a deposit protection fund, can remain in force. Otherwise, bankers might be tempted to rely too much on the visible hand of their central bank president.

The bigger the share of digital currency has become, the more the state guarantees of bankmoney can be withdrawn. Immediate cancellation would not by itself trigger a run on bankmoney, but in a pertinent situation it would certainly add to the proneness to a run and the extent of it. Full cancellation at once might also contribute to threaten the 1:1 parity of bankmoney with digital currency. So, regarding state warranty of bankmoney, one will think of a gradual implementation.

Central bank deposit interest on DC equal to deposit interest on bankmoney Using deposit interest on DC as a tool for influencing the ratio of DC to bankmoney may be tempting. However, as explained above, paying interest on holdings of base money is not substantiated. (That's why the Bundesbank in its time has always refused to pay deposit interest on bank reserves).

If, however, there would be deposit interest on bankmoney, but none on DC, this would importantly contribute to an undesirable effect of pro-cyclical fluctuation: into safe DC in times of heightened uncertainty, back to interest-bearing bankmoney in times of business-as-usual. In this regard, paying deposit interest on DC can be a neutralising measure if the rate on DC is equal to the rate on bankmoney. This will create a level playing field and counteract the undesirable pro-cyclical shifting back and forth.

Ruling out 'negative interest'           
A special reason for introducing DC is to impose so-called negative interest.[33] The question of negative interest is not specifically related to DC, but is relevant to DC too. The term as such is misconceived, following the already problematic definition of 'real interest' defined as the actual interest rate minus the inflation rate. This in turn follows the difference between nominal and real growth of income. The problem here is that abstract arithmetic does not necessarily fit the real world.

For example, you can have more or less income, or no income at all, not however negative income. Less than nothing does not exist. Breaking through the 'lower bound' is possible in the world of numbers, but not in the real world. What really can happen is incurring a loss of purchasing power and wealth, or incurring debt. Therefrom – it has rightly been said often enough – negative interest is an unnatural concept. It refers to something which in actual fact does not exist. You pay interest to someone who has lent money to you, but you do not agree to pay interest to someone who has borrowed from you. Similarly, it might be nice to go shopping and having the shopkeeper to pay you the price for the purchase. Apparently, some such thing is turning the real world upside down.

Negative interest is an inappropriately expanded and thereby distorted measure of conventional interest rate policy, in a desperate attempt to regain the latter's effectiveness that has got lost in the present bankmoney regime. What actually happens when 'negative interest' is imposed, is this:

Negative interest payments on bankmoney reduce the liabilities of banks to their customers and add to a bank's profit account. This is tantamount to an illegal private tax on money holdings to the benefit of the banks. At the same time, the stock of bankmoney is reduced.

In much the same way, and according to present accountancy rules, negative interest on DC, if it were to go to the central bank, would reduce the central bank's liabilities and reduce the publicly available stock of money. As far as this adds to the central bank's surplus, this then would indeed be a tax on holdings of DC, benefitting the public purse – without therefore becoming more sensible and legitimate.

Deletion of liabilities on the banks' and the central bank's balance sheets, that is, deletion of money, would certainly contribute to reducing the existing overhang of money which is the inheritance of the bankmoney regime. But a reduction in this way would be wrongly targeted, hitting where there is the mass purchasing power: the income and savings of the broad middle classes.

What is more, negative interest misses its aim to stimulate expenditure (for fear of negative interest) that would result in demand-induced growth. It remains open to question under which conditions this kind of economic policy by monetary policy might be reasonable at all. Independently, most people react differently anyway. Negative interest, rather than spurring additional expenditure, triggers compensatory spending cuts. If money is confiscated from people they do not hurry to spend what is left, but they will try to make up for what has been taken away (except for conditions of runaway inflation). Negative interest is a technocratic folly born from unworldly model economics. If one wished to help spread populism, implementing nationwide negative interest at a possibly high rate would do the trick.

Imposing negative 'interest' is actually neither about interest nor fees, rather about overt expropriation of money, partly perhaps an unwise tax on money. As an instrument of mone­tary and economic policy, negative interest is counter-productive and unjust, per­haps even unlawful, and should thus generally be ruled out, also in connection with DC.

Concluding remarks
The above discussion of advantages and problems of a coexistence of bankmoney and digital currency, and the choice of design principles shaping their relationship, has raised quite a number of questions one did not have in mind previously. Difficult questions. Watertight answers can, for the most part, not be given yet. But it is not strictly necessary to know all answers and details in advance. The modern world has been living now for about 150 years with the contradictory and conflicting situation constituted by the coexistence of traditional solid cash, bankmoney and fractional central bank reserves. The contradictory and conflicting situation constituted by bankmoney and digital currency side-by-side will basically not be too different from that, and there is no true necessity to make things even more complicated. Simply follow the principles identified:

-    Unrestricted access to currency accounts. No limitations regarding availability, relative quantity and uses of digital currency
-    Free convertibility of bankmoney and digital currency
-    Merging reserves and digital currency into one stock of money. Excess reserves and digital currency interchangeable for banks. No more minimum reserve requirements.  
-    Payments from and to state bodies and other institutions under public law gradually shifted to currency accounts  
-    Gradual withdrawal of any state guarantee of bankmoney
-    In a run on bankmoney that might occur under certain conditions, immediate QE measures for financing the conversion of bankmoney into digital currency
-    Deposit interest on DC, if at all, equal to deposit interest on bankmoney
-    Ruling out negative interest altogether.

To raise one last question: When comparing a full sovereign money approach, including the definite end to the bankmoney privilege, with the partial and gradual introduction of modern sovereign money in the form of digital currency side by side with bankmoney, which way is the better one? In view of the complex conflict situation of a coexistence of bankmoney and digital currency, this allegedly less radical and politically more connective option of 'monetary reform light' turns out to be the more complicated one, still inherently unstable and prone to crisis. The reason is the continuation of the bankmoney privilege and the mode of functioning of the bankmoney regime. In a complete transition from bankmoney to digital currency at a set date, most of the problems discussed above would not even occur in the first place. The unavoidable collision of interests and the related political and scientific debates are much the same either way.      

Pragmatically speaking, introducing digital currency in parallel with bankmoney, in whatsoever variant, is at all events a smaller or bigger step forward, coming with the advantages explained above. The problems inherent to the present near-complete rule of bank­money are still much bigger than problems with a growing share of digital currency might be.

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References

Ali, Robleh / Barrdear, John / Clews, Roger / Southgate, James. 2014a. The economics of digital currencies, Bank of England Quarterly Bulletin, 2014 Q3, 276–286.

Ali, Robleh / Barrdear, John / Clews, Roger / Southgate, James. 2014b. Innovations in payment technologies and the emergence of digital currencies, Bank of England Quarterly Bulletin, 2014 Q3, 262–275.

Andolfatto, David. 2015. Fedcoin: On the Desirability of a Government Cryptocurrency, Macromania, 3 Feb 2015.

Barrdear, John / Kumhof, Michael. 2016. The macroeconomics of central bank issued digital currencies, Bank of England, Staff Research Paper No. 605, July 2016.

Bech, Morten / Garratt, Rodney. 2017. Central bank cryptocurrencies, Basel Bank for International Settlements, Quarterly Review, September 2017, 55–70.

BIS. 2015. Digital currencies, prep. by the BIS Committee on Payments and Market Infrastructures, Basel: Bank for International Settlements. November 2015.

BIS. 2018. Central bank digital currencies, prep. by the BIS Committee on Payments and Market Infrastructures, Basel: Bank for International Settlements, March 2018.

Bjerg, Ole / Nielsen, Rasmus Hougaard. 2018. Who should make kroner? A review of Danmarks Nationalbank's analysis of CBDC, Copenhagen Business School, CBS Working Paper, February 2018.  

Bjerg, Ole. 2017. Designing New Money – The Policy Trilemma of Central Bank Digital Currency, Copenhagen Business School Working Paper, June 2017.

Bjerg, Ole. 2018. Breaking the gilt standard. The problem of parity in Kumhof and Noone's design principles for Central Bank Digital Currencies, Copenhagen Business School Working Paper, August 2018.

Bordo, Michael D. 2018. Central Bank Digital Currency. The Future Direction for Monetary Policy? Shadow Open Market Committee, E21 Manhattan Institute, March 9, 2018, http://shadowfed.org/wp-content/uploads/2018/03/BordoSOMC-March2018.pdf.

Bordo, Michael D. / Levin, Andrew T. 2017. Central bank digital currency and the future of monetary policy, NBER Working Paper Series, no. 23711, Aug 2017.

Broadbent, Ben. 2016. Central Banks and Digital Currencies, Bank of England, 2 March 2016. www.bankofengland.co.uk/publications/Pages/speeches/2016/886.aspx.

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Cœuré, Benoît / Loh, Jacqueline. 2018. Bitcoin not the answer to a cashless society, Financial Times, 13 March 2018. Available on the ECB's website. 

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Dyson, Ben / Meaning, Jack. 2018. Would a Central Bank Digital Currency disrupt monetary policy? Bank Underground, 30 May 2018. 

Eichengreen, Barry. 2017. Central bank-issued digital currency is the future, not cryptocurrency, CNBC The Fintech Effect, 30 Oct 2017.

Grym, Aleksi. 2018. The great illusion of digital currencies, Bank of Finland Economics Review, Issue 1/2018, 1–17.

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Huber, Joseph. 2017a. Sovereign Money - beyond reserve banking, London: Palgrave Macmillan.

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Endnotes

[1] To digital cash or sovereign digital money on the part of the monetary reform movement cf. Dyson/ Hodgson 2016, Wortmann 2016, Yamaguchi/Yamaguchi 2016, Huber 2014, 2017a 188–190. On the part of academic and institutional research Niepelt 2015, BIS 2015, 2018, Bech/Garratt 2017, Bordo/Levin 2017, Bordo 2018, Eichengreen 2017. Skeptical statements on the part of central banks by Kumar/Smith 2017, Thiele 2017, Cœuré/Loh 2018.

[2] https://coinmarketcap.com/all/views/all.

[3] For Fedcoin see Andolfatto 2015, Koning 2014, Winkler 2015. IMFcoins were considered by IMF director Chr. Lagarde.

[4] RSCoin is the concept of a cryptocurrency developed for the Bank of England. See Simonite 2016, Danezis/Meiklejohn 2016.

[5] Andolfatto 2015. Fedwire is the payment system of the U.S. Federal Reserve System.

[6] Sveriges Riksbank 2017.

[7] For example Broadbent 2016, Carney 2018 5.

[8] Also see Kieler Institut 2018 5, 22.

[9] Cf. Scorer 2017.

[10] Dutch central bank presents results of cryptocurrency experiments, coindesk, 23 Jun 2016, by Michael del Castillo.

[11] Grym 2018 1, 13. Also Thiele 2017.

[12] Barrdear/Kumhof 2016 3–18, Kumhof/Noone 2018 4–22, 35–37. Prior to these Ali/Barrdear/Clews/ South­­gate 2014a+b, Broadbent 2016.

[13] Barrdear/Kumhof 2016 3–18. Kumhof/Noone 2018 4–22, 35–37.

[14] Kumhof/Noone 2018 pp.18.                                                                                                                                 

[15] For details cf. Huber 2017 57–75, 2017b.

[16] RTGS = Real-Time Gross Settlement Systems. Payments (transfer of balances) are carried out immediately rather than cleared and settled at the end of the day.  

[17] Kumhof/Noone 2018 pp.8.

[18] Sveriges Riksbank 2017 5, pp.19. The 'e' in e-krona stands for electronic; the krona is Sweden's national currency unit.

[19] Sveriges Riksbank 2017 19, pp.21. Similar concepts are now being developed elsewhere too, for example, e-franks for Switzerland, on which the government has commissioned a study in summer 2018. 

[20] Meaning/Dyson/Barker/Clayton 2018, Dyson/Meaning 2018.

[21] Meaning/Dyson/Barker/Clayton 2018 2–8.

[22] Meaning/Dyson/Barker/Clayton 2018 pp.15, pp.21.

[23] Meaning/Dyson/Barker/Clayton 2018 pp.24.

[24] Winkler 2015 10.

[25] See www.sovereignmoney.eu/central-bank-currency-register-for-accounting-for-sovereign-money.

[26] Niepelt 2015.

[27] Broadbent 2016 5.

[28] Also see Bjerg/Nielsen 2018.

[28a] Kumhof/Noone 2018 pp.8.    

[29] The problem of parity between different monies from different originators, especially parity between bankmoney and sovereign money, is discussed in much detail in Bjerg 2017 and 2018 6ff, 9ff, 18.

[30] Bjerg 2018 14ff.

[31] Bjerg 2017 29ff, 2018 7.

[32] The pivotal role of state guarantees for bankmoney as a decisive system element is particularly emphasised inWortmann 2016, 2017a+b. Equally emphasized is cancellation of those guarantees as a precondition for establishing a sovereign money system.

[33] For example in Bordo/Levin 2017 3, Bordo 2018 3.

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