Central Bank Digital Currency – Stability The Goal
Out of the darkness, light. A new paper reveals the ultimate goal of central bankers and their desire to foist Central Bank Digital Currencies (CBDCs) on the financial system.
The paper makes it clear that the ultimate goal is stability in the system – reinforcing the argument regularly made in this News section that CBDCs are a neat form of digital banking, with the central bank as the banker. But the CBDC is nothing to do with crypto currencies – to which central bankers are implacably hostile.
A well-designed central bank digital currency may enhance rather than weaken financial stability, according to a working paper from the US Treasury’s Office of Financial Research.
As central banks around the world investigate the introduction of a CBDC, one concern raised repeatedly is that the move could make runs on banks more frequent or more severe.
However, in an OFR working paper, Todd Keister and Cyril Monnet argue that banks would lower their maturity mismatch when depositors have access to CBDC, reducing their exposure to depositor runs.
In addition, the flow of funds into a CBDC provides policymakers with a new source of real-time information enabling them to react faster to potential runs. Depositors would anticipate this faster policy reaction, which decreases their incentive to join the run.
The paper highlights the importance of a CBDC’s design for how it affects financial stability. Decisions about how balances are held and transferred, as well as any fees or interest payments on balances, will determine how attractive the currency is to users in normal times and in periods of stress.
Historical Performance And IFISA Process Guide
- Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee).
That figure is the result of over £24 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
- Money&Co. has been lending for over 7 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
- Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
- Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
- Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.
The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.
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