Currency Sovereign Research Articles

Sovereign currency and long-term interest rates in advanced economies from 1879 to 2016

ABSTRACT This paper explores the effects of government debts and deficits on long-term interest rates under different international monetary systems from the perspective of monetary sovereignty. The findings of this paper confirm conventional accounts of financial crowding-out and the adverse impact of growing public debt on interest rates among countries under the classical Gold Standard period (1879–1913) and non-sovereign countries under the recent fiat system (1973–2016). By contrast, countries in the Bretton Woods era (1959–1970) and sovereign countries in the contemporary post-Bretton Woods era (1973–2016) do not exhibit such positive debt-interest rates relationships while still showing crowding-out but with much less magnitude. Overall, the results support the Modern Money Theory (MMT) view that the consequence of monetary sovereignty from 1879 to 2016 is to remove, or greatly attenuate, the impact of default risk, fiscal balance, and bond vigilantes on the interest rate.

Implications of Central Bank Digital Currency in India: A Critical Analysis

Central Bank Digital Currency (CBDC) is creating a lot of waves these days in the Indian economy due to its digital character. It is a sovereign currency issued by the central bank and a fungible legal tender for which users need not have a bank account. It is a much faster real-time tool to not only do a simple exchange of funds but for development of India’s monetary policy. In other words, CBDC is the physical bank note which is now put on a blockchain. Many questions arise about the legal and policy implications of CBDC. Even people are muddled as to what is the need of introducing a digital currency when cryptocurrency and other e-payment platforms are existent. This paper shall try and highlight the effect on the economy by introduction of digital currency and what are the major privacy, security, technological and monetary policy concerns surrounding it. It shall also draw comparisons from other jurisdictions where a digital currency has already been bought into force.

How Is Money Driven? The Case in Shanghai (1949–1950)

This article presents a case study of how the Renminbi won the currency war in Shanghai between 1949 and 1950. This case study supports the proposition of chartalism and MMT that money is a creature of the state, and in two ways deepens our understanding of the role of the state in the sovereign currency system. First, taxation is not the only way to drive money. The Shanghai government also drove money by supplying goods. Second, the outcome of a currency war depends on many historical factors, and the government plays an important role by changing the conventions that shape people’s monetary behavior. The Shanghai government adopted anti-inflation policies to transform the conventions of valuing commodities and metallic currencies over paper currencies.

Decentralised Finance’s timocratic governance: The distribution and exercise of tokenised voting rights

Ethereum’s public distributed ledger can issue tokenised voting rights that are tradable on crypto-asset exchanges by potentially anyone. Ethereum thus enables global, unincorporated associations to conduct governance experiments. Such experiments are crucial to Decentralised Finance (DeFi). DeFi is a nascent field of unlicensed, unregulated, and non-custodial financial services that utilise public distributed ledgers and crypto-assets rather than corporate structures and sovereign currencies. The inaugural Bloomberg Galaxy DeFi Index, launched in August 2021, included nine Ethereum-based projects – non-custodial exchanges as well as lending and derivatives platforms. Each project is governed, at least in part, by unregistered holders of tokenised voting rights (also known as governance tokens). Token-holders typically vote for or against coders’ improvement proposals that pertain to anything from the allocation of treasury funds to a collateral’s risk parameters. DeFi’s governance thus depends on the distribution and exercise of tokenised voting rights. Since archetypal DeFi projects are not managed by companies or public institutions, not much is known about DeFi’s governance. Regulators and law-makers from the United States recently asked if DeFi’s governance entails a new class of “shadowy” elites. In response, we conducted an exploratory multiple-case study that focused on the tokenised voting rights issued by the nine projects from Bloomberg’s inaugural Galaxy DeFi index. Our mixed methods approach drew on Ethereum-based data about the distribution, trading, staking, and delegation of voting rights tokens, as well as project documentation and archival records. We discovered that DeFi projects’ voting rights are highly concentrated, and the exercise of these rights is very low. Our theoretical contribution is a philosophical intervention: minority rule, not “democracy”, is the probable outcome of token-tradable voting rights and a lack of applicable anti-concentration laws. We interpret DeFi’s minority rule as timocratic.

Prospects for the Development of Digital CNY

After decades of development, digital currency has been recognized worldwide. But the current private cryptocurrencies in the market, including stable coins, don’t have the potential to become a unified currency. In this context, central banks of global countries have also started research on currency digitization. The People's Bank of China started research on the digital CNY in 2014, which will help the CNY escape the control of the USD and help it dominate the world currency field. After nearly ten years of development, the feasibility and development path of digital renminbi have basically formed a definite idea. However, the development prospects of the digital CNY still face issues related to the degree and method of Block Chain integration, the impact on sovereign currencies, and decentralization. This article will give a theoretical basis and policy suggestions on the development feasibility and development prospects of the digital CNY through a brief introduction and function analysis.

数字货币与主权货币的比较研究——以比特币为例

数字货币与主权货币的比较研究——以比特币为例

Legalizing China's Economic Coercion Toolkit

China is in the late stages of developing a Central Bank Digital Currency (CBDC), which is essentially a digital, sovereign currency lacking convertibility to physical cash. This initiative is a significant innovation in currency systems, not yet implemented by any other country. China will face unique challenges in its CBDC project. As a first mover in this space, Chinese leaders are no longer able to study the successes and failures of other nations who have previously attempted to launch a CBDC. Yet, Beijing leadership may draw on experiences from its own prior reforms and governance challenges. This article will highlight three governance principles, developed through the reforms of the twentieth and twenty-first centuries, that will give Beijing a unique advantage as a first mover in the CBDC race: (1) dual-track transition systems, (2) regional experimentation, and (3) rapid construction of regulatory systems. This paper hopes to show how China is taking a distinct approach to the initiative compared to competing states, an approach that is engrained in China’s governance experience since the late 1970s. In conclusion, I argue that China’s recent experience in a variety of transformation initiatives provides its leadership and institutions unique principles that will advantage China’s CBDC project, especially when compared to competitors working to establish their own CBDC such as the United States and European Union.

MMT, Sovereign Currencies and the Eurozone

ABSTRACT This paper is an answer to the question: What is new, what is good and what is relevant for Eurozone countries in Modern Monetary Theory (MMT)? The answer is organized under six questions: (1) What is MMT? (2) What is the definition of a sovereign currency — an important concept for MMT authors? (3) Does the institutional setup play any role in assessing monetary sovereignty? (4) Is the euro a foreign currency for eurozone countries, that is, are eurozone countries currency users or currency issuers? (5) Why could there be a eurozone financial crisis and was it a balance-of-payment crisis, as a number of authors have claimed? (6) And as a conclusion, what is the future of the Eurozone? It is argued that MMT is part of the Institutionalist branch of post-Keynesian economics; that the current definition of a sovereign currency is insufficient; that the Eurozone crisis arose from the combination of Maastricht-like rules and the convention that the European Central Bank would not act as a purchaser of last resort; and that this crisis can only be taken to be a balance-of-payment crisis when considering that bond investors thought some countries would leave the Eurozone and face currency depreciation.

The Disadvantages of Sovereign Currency as the World Currency

From the perspective of Marx’s theory of the functioning of the international monetary system, there are inherent disadvantages in a sovereign currency acting as the world currency. First, the existing model of the single world currency is unfair, with the country whose sovereign currency functions as the world currency able to obtain huge international seigniorage and international inflation tax. Second, this single world currency model is unstable. The premise behind the functioning of an international monetary means of payment is the strong credit of currency-issuing countries, but the Triffin problem means that the sovereign currency issuers face a dilemma. Third, the duality of the monetary measure of value determines that there can be only one currency performing the function of a world currency in the international market, and a multipolar world currency pattern will lead to frictions among currency-issuing countries. Recognizing the disadvantages of using a sovereign currency as the world currency has important reference value and educative significance for achieving a correct view of digital currency, eSDRs, and RMB internationalization.

Global demand for basket-backed stablecoins

We construct a model where a basket-backed stablecoin – a currency backed by and pegged to a combination of sovereign currencies, such as Mark Carney's “synthetic hegemonic currency” or Facebook's proposal for Libra – is demanded for transaction purposes. In the model, demand for the basket derives from trade shocks which affect demand for the underlying sovereign currencies. Despite providing a justification for the basket, our model, in numerical simulations, predicts that overall demand for the basket will be low. This derives from a general-equilibrium effect of the basket currency: Demand for the basket creates pass-through demand for the underlying currencies that back it. This pass-through demand stabilizes the value of the currency for which the basket was meant to substitute, limiting demand for the basket. We calculate that this low demand from buyers would likely limit adoption by sellers. Further, we show that agents in the economy disagree about the optimal basket composition, but its welfare impacts are small.

BRAZILIANS' PERSPECTIVE ON CRYPTOCURRENCIES

The advance in science and technology combined with the development of the Internet offers new options for the use of money. Economic agents are beginning to lose physical contact with money and carry out transactions through electronic channels. The debate on the subject is of international relevance and foresees the manifestation of the monetary authority, which shows the importance of the subject. This paper sought to present the theories of demand for cryptocurrencies, discuss the perspective of Brazilians in relation to digital assets, and show the role of cryptocurrencies in the current economy. This study aimed to identify how the growth in demand for cryptocurrencies can impact the financial system and the globalized economy. The methodology employed is bibliographical, documental, and field research on the monetary evolution and the perspective of Brazilians in relation to crypto assets. Based on the online questionnaire conducted with 170 respondents who answered about what they understand by digital assets, it was observed that most of them are not used to the theme in question, however, there is a great interest in learning. It is concluded that compared to sovereign currencies, cryptocurrency meets monetary demand in isolation, in each context and period.

CONTRIBUTION OF ALTERNATIVE THEORIES OF MONEY TO THE CREATION OF A MODEL OF THE MONETARY SYSTEM IN RUSSIA (LATE XIX — EARLY XX CENTURY)

The economic and political instability of the present time in the world, being a reflection of the complex process of transition to new post-industrial technologies, increases instability in the sphere of monetary relations. The article aims to investigate the conceptual differences that contributed to the formation of alternative approaches in the theory of money at the turn of the XIX–XX centuries during the discussion of the prospects for the transition to credit circulation in extreme economic conditions. Attention is drawn to the fact that the problem of choosing a model of the monetary system, metallic or monetary, becomes the most urgent during the transformation of the economy.
 
 The article provides a comparative analysis of the key provisions of the nominalist, quantitative, credit and conjunctural theories of money, their conceptual differences in understanding the nature, functions of banknotes and their role in price formation. The features of the conjunctural theory of money that distinguish it from the provisions of alternative concepts, market and state mechanisms for regulating money turnover are clarified. Algorithms for the formation of the general level of money prices in the conjunctural theory of money by M.I. Tugan-Baranovsky are considered. It is shown that the concept of nominalism, which expresses the interests of the state, justifies the need to use paper banknotes as the most effective financial resource of the government in emergency economic situations and the demonetization of gold.
 
 The proposals of the leaders of the modern theory of money concerning the forced issue of "sovereign currency", weakening the national currencies of other countries, are analyzed. It is shown that the incorrect interpretation of the categories of government bonds and national currency by the leaders of the modern theory of money in comparison with the classical provisions narrows the field of scientific analysis, leads to a confusion of the concepts of state interest-bearing and interest-free domestic debt, and destabilization of the monetary and economic system as a whole.
 
 The contribution of alternative concepts of money to the creation of a theoretical model and structure of the Russian state monetary system of the early twentieth century is shown. It is concluded that during periods of acute shortage of budgetary resources, there is a revival of the arguments of the nominalist theory of money in new economic conditions.

Information Flow Network of International Exchange Rates and Influence of Currencies.

The main purpose of the study is to investigate how price fluctuations of a sovereign currency are transmitted among currencies and what network traits and currency relationships are formed in this process under the background of economic globalization. As a universal equivalent, currency with naturally owned network attributes has not been paid enough attention by the traditional exchange rate determination theories because of their overemphasis of the attribute of value measurement. Considering the network attribute of currency, the characteristics of the information flow network of exchange rate are extracted and analyzed in order to research the impact they have on each other among currencies. The information flow correlation network between currencies is researched from 2007 to 2019 based on data from 30 currencies. A transfer entropy is used to measure the nonlinear information flow between currencies, and complex network indexes such as average shortest path and aggregation coefficient are used to analyze the macroscopic topology characteristics and key nodes of information flow-associated network. It was found that there may be strong information exchange between currencies when the overall market price fluctuates violently. Commodity currencies and currencies of major countries have great influence in the network, and local fluctuations may result in increased risks in the overall exchange rate market. Therefore, it is necessary to monitor exchange rate fluctuations of relevant currencies in order to prevent risks in advance. The network characteristics and evolution of major currencies are revealed, and the influence of a currency in the international money market can be evaluated based on the characteristics of the network. The world monetary system is developing towards diversification, and the currency of developing countries is becoming more and more important. Taking CNY as an example, it was found that the international influence of CNY has increased, although without advantage over other major international currencies since 2015, and this trend continues even if there are trade frictions between China and the United States.

Is Modern Monetary Theory’s prescription to spend without reference to tax receipts an invitation to tyranny?

Abstract A set of policy prescriptions based on Modern Monetary Theory (MMT) have been developed that are independent of the monetary model, which are often presented together, in a context that does not require taxation: guaranteed income, job guarantee and full employment. These are enabled by the ability of a government to deficit spend as needed, as long as government controls its sovereign currency. Here I raise the concern that implementing MMT accounting could cause increases in political power inequality relative to citizens not seen since the medieval era or before. The assumption that spending and tax policy in an MMT system would occur as proponents expect is contradicted by the history of political choices regarding spending and taxation over the past half-century. The record of behaviour by politicians in the nations where foreign aid money “fell from the sky,” thus divorcing national income from the tax base, also contradicts this idea. With removal of the formal requirement for taxation, politicians operating in an MMT system will have little inherent reason in the short term to treat citizens well except moral suasion. This should provide a foundation for tyranny unparalleled in modern history. Incorporating progressive taxation into MMT’s corpus, for the express purpose of economic and political stability, is suggested in order to achieve the overall aims of the MMT policy advocates. However, this may not be sufficient. In addition, considering increasing the role of governors/leaders of states within the monetary unions may be useful, because those governments do need to follow the old rules of taxation to support spending, and this may provide a counterweight.

Sovereign digital currency system with decentralized infrastructure

In this paper, we consider the concept of a 1-tier national monetary system based on a digital sovereign currency issued by a central bank. In contrast to the approach, based on a centralized technical infrastructure, used in most, if not all, CBDC projects, we suggest to use a decentralized infrastructure. Such an infrastructure can be thought of as a peer-to-peer network consisting of nodes, which are equipotent participants and are equally privileged, each providing a complete set of services required to maintain digital wallets and process transactions with digital currency. Also, unlike most of CBDC projects, two possible formats of digital titles of property are considered: digital accounts with continuously modifiable amount and token-like digital coins with a fixed non-modifiable amount. The suggested model of currency system involves built-in payment mechanisms enabling one to carry out, both online and offline, transfers of digital currency with immediate finality and irrevocability. In this paper, we present an overview of the suggested model of currency system.

The Impact of Blockchain on Emerging Economies

The development of blockchain technology - an open distributed ledger of entries that records transactions in a permanent way without requiring third-party authentication (Marr, 2018) - and the subsequent appearance of the cryptocurrency Bitcoin in 2010 ignited a wave of investor enthusiasm and extraordinary projections for its use and impact, especially in the emerging economies. This article reviews the early expectations for blockchain in emerging economies, examines its progress in the first decade of its use, identifies implementation obstacles unique to emerging economies, and projects its most likely impact in the next decade. The Covid-19 pandemic of 2020 is likely to affect the expansion of blockchain and cryptocurrencies throughout the world, including emerging economies. Some expect that blockchain will encompass sovereign currencies, with experiments in the future by China and Sweden (Canesin, 2020).

Sovereign currency and long-term interest rates

ABSTRACT This paper investigates the effects of government debt and deficits on long-term interest rates in 17 advanced economies over the period 1973–2016 from the perspective of currency sovereignty. The empirical findings of this paper suggest the market penalizes non-sovereign nations for the same amount of fiscal deficit with higher interest rates than sovereigns. In addition, non-sovereign countries face accelerating interest rates for an increase in the debt-to-GDP ratio beyond a certain threshold (49% to GDP) while such a pattern is not obvious among sovereign nations. Overall, the results support Modern Monetary Theory (MMT) view that a monetarily sovereign government, as a monopoly issuer of currency, can influence the prices of their liabilities to a significant extent, somewhat independent of existing public debt and market sentiment.

Challenges and Opportunities in the Application of China’s Central Bank Digital Currency to the Payment and Settle Account System

<p>With the advancement of the Internet and big data technology, currency has gradually developed in the direction of virtualization and digitization. The governments and central banks of various countries have gradually begun to pay attention to the role of digital currencies, and central bank digital currencies have emerged as the times require. As one of the first countries to study digital currency, China will devote itself to applying central bank digital currency to actual transactions in the future.</p><div>This article focuses on how China’s CBDC is used in the transaction settlement system. The opportunity is that the central bank’s digital currency technology improves the security, flexible operation and diversified application scenarios of the overall transaction settlement system, and further safeguards China’s national financial sovereignty. The challenge is that the current technology is still uncertain and different from the traditional RMB. In the future, China’s CBDC will also compete fiercely with other sovereign currencies. It is recommended to strengthen technological innovation, improve the relevant systems and regulations of the central bank’s digital currency operation, and make relevant policies to prevent the United States from imposing political and economic sanctions on China. This article will provide</div><div>suggestions on the challenges that the People’s Bank of China may face in the future application of digital currency to the transaction settlement system.</div>

Money in the Twenty-First Century: From Rusty Coins to Digital Currencies

After the Global Financial Crisis, central banks became identified as banks’ closest allies, rescuing them from failure when things go wrong. Banks, in turn, emerged as complex and unstable institutions that privatize profits and socialize losses, to the despair of taxpayers. And regulation and regulators were seen as incapable of curbing financial excess. The coronavirus pandemic only exacerbated the generally negative sentiment, as governments lacked a fast and simple way to send relief money directly to their citizens. In the meantime, sovereign currencies have faced increased private competition, from Bitcoin to big tech global projects. At this point, some structural reform of the monetary system seems not only desirable but inevitable. It is about time to look again at the role of money in the modern economy and better understand its features and flaws. This Article thus offers a guide to the recent evolution of money and what its future might hold.

Sovereign CDS and Currency Carry Trades: Two Tales in Developed and Emerging Economies

Sovereign CDS and Currency Carry Trades: Two Tales in Developed and Emerging Economies