Why Central Bank Money Matters?

Central bank money is the only ‘safe money and a risk-free means of payment to households, businesses and the wider financial system’ (Bank of England), the sole ‘ultimate safe asset, base money’ (ECB), and the unique safe form of money ‘with no chance of default, and [is] important in daily payment and settlement’ (Bank of Japan). ‘Central bank money is issued by, and forms a claim on, the central bank, that is ultimately the central government’ (Sveriges Riksbank).

Central bank money, or base money, is comprised of cash – mainly banknotes – and non-cash deposits, or reserves. The public don’t have access to bank deposits, while banks can make use of all the forms of this safe money. But the emerging cashless society will mean members of the public soon won’t be able to access even cash. Many shops and restaurants in New York have stopped taking US dollar banknotes; those in London are rejecting British pounds; and in Stockholm almost nobody accepts Swedish krona notes. So, it turns out, merchants and their payment policies dictate whether banknotes and coins of a country’s currency will be accepted.

This is how it seems merchants will usher us into the cashless society. When asked about what the world was in store for, the Swedish central bank responded: ‘In a cashless society, a restricted group of financial corporations has access to risk-free central bank money. The general public, in contrast, does not.’ If the public’s access to it is cut, central bank money would lose its risk-free status, and reserves would remain private bank money. There would only be private money.

Obviously, technologically superior payment methods have been irrevocably squeezing out traditional banknotes. Most consumers and merchants understandably prefer to use these means of payment due to their convenience. The crucial issue is that the disappearance of banknotes will mean the end of risk-free money for the public, the only money with stable nominal value. Without banknotes, £10 will not always be £10, €10 will not remain €10, and $10 will not stay $10. If they disappear, so does the genetic code of money, something that corporate issuers cannot replicate.

                                                                                       That’s why it’s important to
                                                                    KEEP YOUR MONEY IN YOUR HANDS

Stable prices of goods, services, and real and financial assets are unthinkable without nominally stable money. Losing cash would mean losing the unit of account – the nominal anchor of both the economy and society. Unless a majority of people support banknotes, they will inevitably disappear due to the negative network effect.

The digital revolution isn’t a threat to money, since money itself first appeared as an extraordinary technological innovation. What does bring money into question, however, is attempts to change its characteristics using technology and create ‘new issuers’. That’s why it’s extremely important to keep banknotes in use.

Keeping banknotes means more than just giving them a stay of execution as a means to guarantee access to cash until vulnerable groups and retail businesses have adjusted. No: this issue is about preserving the nominal stability of our money: so that £10 is always worth £10, $10 stays $10, €10 remains €10… Banknotes are the last bulwark against monetary policy without constraint and destructive negative interest rates. Ultimately, paper money is the sole remaining ballot paper we can use to rein in the central bankers and other policymakers. This is why your vote is decisive.

                                                                                  Independent research is also key
                                                                                     The CBM Research Team

Our research team consists of a group of independent researchers working together to explore how money evolves. We believe money is far too important to every individual, the economy, and society at large to be left up to central bankers, monetary policy experts, and academic researchers and scientists. That’s why this web site showcases the results of our research, which aims to contribute to a better understanding of the latest developments and issues connected with the issuance of money, its circulation, functions, and digital transformation, and payment services.

The findings of our research are presented as short essays, written in an approachable style, with only the required minimum of technical terminology. The subjects for these articles are chosen by how topical they are and how much they affect our day-to-day lives. This is why so many of the essays date from between January and April of 2020. The fallout from Covid-19 has been an obvious choice: a piece devoted to the pandemic follows immediately after the introductory article.

                                                                                   How money disappears

                                                                    Money in the time of coronavirus

                                                                       Abolition of cash or loss of anchor

                                                                              Fractional bank money

                                                                     Negative nominal interest rates

                                                                       CBDC: currency or platform?

We start with the mother of all monetary topics: the rapid disappearance of central bank money for the public. If you can’t use cash anywhere you regularly go – down the shops, at the pub, or at the hairdresser’s – you’ll find cash obsolete, too. Central bank money for the public will have gone. And this’ll mean authentic money will have disappeared as well, because no digital cash substitute possesses the key characteristics of cash: safety, accessibility, transferability (person-to-person), finality, privacy, independence and instantaneity.

                                                                                    Hence the motto of our short essays:
                                                                         KEEP YOUR MONEY IN YOUR HANDS.

This phrase is a slightly altered rendering of the somewhat obscure Epigram for Wall Street, published in the New York Evening Mirror on 23 January 1845. The author of this short poem remains anonymous – but at just that time the Evening Mirror counted one Edgar Allan Poe amongst its contributors. Some scholars think it’s unlikely Poe wrote the Epigram, but others believe the verses are his work. The truth may never be known, but there’s no doubt that Edgar Allan Poe must have read the Epigram, and – perhaps most importantly – that his wit and poetry shine through the lines.

Finally, we’re convinced that impartiality is of the utmost importance, as it shields the researcher from the influence of private individuals, institutions, and funders. Our research is not funded or supported by any other means by any central or commercial bank or banking group, payments company or platform, or any other institution, either public or private, national or international. Our investigations are open for support only from you and other like-minded people who feel our findings have benefits for the public.

Discussion Papers

CBDC as a Solution for Billions of Unbanked People

The illusion of paper money as ‘the dominant means of payment’

                                                            Feel free to e-mail us with any questions and comments.

© Central Bank Money Research™. All rights reserved. You may copy the essays, either in whole or in part, as long as you explicitly credit the source as Central Bank Money Research. You must also e-mail us the date and place where you used materials from this web site at office@CBMresearch.info and team@CBMresearch.info.

The responsibility for these popularising essays lies solely with the Research Team Leader