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cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start [2022/05/13 16:10] terrance [Example Discussion] |
cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start [2022/06/17 18:44] (current) terrance |
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| ====== Question: 04. How might a U.S. CBDC affect the Federal Reserve’s ability to effectively implement monetary policy in the pursuit of its maximum-employment and price-stability goals? ====== | ====== Question: 04. How might a U.S. CBDC affect the Federal Reserve’s ability to effectively implement monetary policy in the pursuit of its maximum-employment and price-stability goals? ====== | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:start| Return to CBDC Benefits, Risks, and Policy Considerations ]] | + | |< 100% >| |
| + | | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:start| Return to CBDC Benefits, Risks, and Policy Considerations ]] | <WRAP> | ||
| + | <html><b> | ||
| + | <a href="mailto:[email protected]?Subject=OMG's CBDC WG Response: | ||
| + | Question: 04. How might a U.S. CBDC affect the Federal Reserve’s ability to effectively implement monetary policy in the pursuit of its maximum-employment and price-stability goals? | ||
| + | ">Provide Feedback</a></b> | ||
| + | </html> | ||
| + | </WRAP> | | ||
| + | |||
| ===== Question ===== | ===== Question ===== | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] | + | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] |
| - | **How might a U.S. CBDC affect the Federal Reserve’s ability to effectively implement monetary policy in the pursuit of its maximum-employment and price-stability goals?** | + | **How might a U.S. CBDC affect the Federal Reserve’s ability to effectively implement monetary policy in the pursuit of its maximum employment and price stability goals?** |
| ===== Answer ===== | ===== Answer ===== | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] | + | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] |
| ==== Overview ===== | ==== Overview ===== | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] | + | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] |
| In order to answer this question, it is important to have some definitions that relate to Federal Reserve’s ability to effectively implement monetary policy. Based on these definitions explore //"What is the Federal Reserves Monetary Policy"//, and finally focus on non-Cash payments and how they relate to CBDC. | In order to answer this question, it is important to have some definitions that relate to Federal Reserve’s ability to effectively implement monetary policy. Based on these definitions explore //"What is the Federal Reserves Monetary Policy"//, and finally focus on non-Cash payments and how they relate to CBDC. | ||
| === Definitions === | === Definitions === | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] | + | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] |
| The Federal Reserve has defined the following terms:(( | The Federal Reserve has defined the following terms:(( | ||
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| </WRAP>| | </WRAP>| | ||
| ^ Open Market Operations | <WRAP> | ^ Open Market Operations | <WRAP> | ||
| - | **Open Market Operations** involves the buying and selling of government securities. The term **Open Market** means that the Fed doesn’t decide on its own which securities dealers it will do business with on a particular day. Rather, the choice emerges from an “open market” in which the various securities dealers the Fed does business with – the primary dealers – compete on the basis of price. **Open Market Operations** are flexible, and thus, the most frequently used tool of monetary policy. | + | **Open Market Operations** involve the buying and selling of government securities. The term **Open Market** means that the Fed doesn’t decide on its own which securities dealers it will do business with on a particular day. Rather, the choice emerges from an “open market” in which the various securities dealers the Fed does business with – the primary dealers – compete on the basis of price. **Open Market Operations** are flexible, and thus, the most frequently used tool of monetary policy. |
| </WRAP>| | </WRAP>| | ||
| ^ Reserve Balances | <WRAP> | ^ Reserve Balances | <WRAP> | ||
| Line 62: | Line 71: | ||
| === What is the Federal Reserves Monetary Policy === | === What is the Federal Reserves Monetary Policy === | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] | + | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] |
| - | Figure {{ref>transmissionOfmoney}} illustrates the transmission of monetary policy. In the broadest terms, monetary policy works by spurring or restraining the growth of overall demand for goods and services in the economy. When overall demand slows relative to the economy's capacity to produce goods and services, unemployment tends to rise and inflation tends to decline. The FOMC helps stabilize the economy in the face of these developments through the stimulation of the overall demand using an easing of monetary policy that lowers interest rates. Conversely, when overall demand for goods and services is too strong, unemployment can fall to unsustainably low levels and inflation can rise. In these situations, the Federal Reserve guides economic activity back to more sustainable levels and keeps inflation in check by tightening monetary policy to raise interest rates. This process of the FOMC eases and tightens monetary policy to achieve its goals.(( | + | Figure {{ref>transmissionOfmoney}} illustrates the transmission of monetary policy. In the broadest terms, monetary policy works by spurring or restraining the growth of overall demand for goods and services in the economy. When overall demand slows relative to the economy's capacity to produce goods and services, unemployment tends to rise and inflation tends to decline. The FOMC helps stabilize the economy in the face of these developments through the stimulation of the overall demand using an easing of monetary policy that lowers interest rates. Conversely, when overall demand for goods and services is too strong, unemployment can fall to unsustainably low levels and inflation can rise. In these situations, the Federal Reserve guides economic activity back to more sustainable levels and keeps inflation in check by tightening monetary policy to raise interest rates. This process of the FOMC eases and tightens monetary policy to achieve its goals. (( |
| Federal Reserve, | Federal Reserve, | ||
| __Monetary Policy: What Are Its Goals? How Does It Work?__ | __Monetary Policy: What Are Its Goals? How Does It Work?__ | ||
| Line 72: | Line 81: | ||
| <figure transmissionOfmoney> | <figure transmissionOfmoney> | ||
| - | {{ :cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:screen_shot_2022-04-17_at_8.05.33_pm.png?700 |}} | + | {{ cbdc:04_doc:20_comments:brp:q04:screen_shot_2022-04-17_at_8.05.33_pm.png?700 |}} |
| <caption>The transmission of Monetary Policy.(( | <caption>The transmission of Monetary Policy.(( | ||
| Federal Reserve, | Federal Reserve, | ||
| Line 82: | Line 91: | ||
| === CBDC as a non-Cash Payments === | === CBDC as a non-Cash Payments === | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] | + | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] |
| On average, each day, U.S. consumers and businesses make noncash payments worth roughly \$1/2 trillion currently using payments through: | On average, each day, U.S. consumers and businesses make noncash payments worth roughly \$1/2 trillion currently using payments through: | ||
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| Banks may borrow and lend reserves to each other depending on their needs and market conditions; as such, banks can use **Reserve Balances** both as a means of funding and as an investment. The federal funds rate is the interest rate that banks pay to borrow **Reserve Balances** overnight. | Banks may borrow and lend reserves to each other depending on their needs and market conditions; as such, banks can use **Reserve Balances** both as a means of funding and as an investment. The federal funds rate is the interest rate that banks pay to borrow **Reserve Balances** overnight. | ||
| - | When a CBDC is created and goes public, CBDC payments will have to be added as a new way of making noncash payments. This means in order to obtain a better understanding of the banks' reserve currency requirements, all the CBDC payments in the bank need to be accounted for. In other words, these CBDC payments need to be added to the total tally of U.S. consumers' and businesses' noncash payments. This requires the CBDC to adopt a [[cbdc:private:cbdc_omg:04_doc:15_common:08_currency_models:15_accounts:start | Digital Account Model]] leading to concerns about [[cbdc:private:cbdc_omg:04_doc:15_common:45_privacy:start | End User Privacy]]. | + | When a CBDC is created and goes public, CBDC payments will have to be added as a new way of making noncash payments. This means in order to obtain a better understanding of the banks' reserve currency requirements, all the CBDC payments in the bank need to be accounted for. In other words, these CBDC payments need to be added to the total tally of U.S. consumers' and businesses' noncash payments. This requires the CBDC to adopt a [[cbdc:public:cbdc_omg:04_doc:15_common:08_currency_models:15_accounts:start| Digital Account Model]] leading to concerns about [[cbdc:public:cbdc_omg:04_doc:15_common:45_privacy:start| End User Privacy]]. |
| To facilitate such payments, banks hold **Reserve Balances** at the Fed; payments can be settled by transferring **Reserve Balances** between banks. Banks also hold these balances to meet unexpected liquidity needs and to satisfy a number of regulatory requirements aimed at ensuring that banks are sound and that their customers' deposits are safe. Banks may borrow and lend reserves to each other depending on their needs and market conditions; as such, banks can use **Reserve Balances** both as a means of funding and as an investment. The federal funds rate is the interest rate that banks pay to borrow **Reserve Balances** overnight. | To facilitate such payments, banks hold **Reserve Balances** at the Fed; payments can be settled by transferring **Reserve Balances** between banks. Banks also hold these balances to meet unexpected liquidity needs and to satisfy a number of regulatory requirements aimed at ensuring that banks are sound and that their customers' deposits are safe. Banks may borrow and lend reserves to each other depending on their needs and market conditions; as such, banks can use **Reserve Balances** both as a means of funding and as an investment. The federal funds rate is the interest rate that banks pay to borrow **Reserve Balances** overnight. | ||
| ===== Examples ===== | ===== Examples ===== | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] | + | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] |
| - | The following "desirements" are from the [[https://www.omgwiki.org/CBDC/doku.php?id=cbdc:private:cbdc_omg:15_summary:start | White Paper]] as identified by the [[https://www.omg.org/ | Object Management Group's ]] report called [[https://www.omgwiki.org/CBDC/doku.php?id=cbdc:private:cbdc_omg:15_summary:start | White Paper Analysis]]: | + | The following "desirements" are from the [[https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf | White Paper]] as identified by the [[https://www.omg.org/ | Object Management Group's ]] CBDC WG report called [[cbdc:public:cbdc_omg:04_doc:12_summary:start | White Paper Analysis]]: |
| <table> | <table> | ||
| - | <caption>Example of mapping a subset of requirements identified during the White Paper Analysis conducted by the OMG</caption> | + | <caption>Example of mapping a subset of requirements identified during the White Paper Analysis conducted by the OMG's CBDC WG.</caption> |
| |< 100% 15% >| | |< 100% 15% >| | ||
| ^ Benefits | B0003, B0004, B0007, B0011, B0018, B0020, B0024, B0025,B0026, B0029, B0034, B0038, B0040, B0044, B0045, B0046, B0047, B0049, B0051 | | ^ Benefits | B0003, B0004, B0007, B0011, B0018, B0020, B0024, B0025,B0026, B0029, B0034, B0038, B0040, B0044, B0045, B0046, B0047, B0049, B0051 | | ||
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| ===== Example Discussion ===== | ===== Example Discussion ===== | ||
| - | [[cbdc:private:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] | + | [[cbdc:public:cbdc_omg:04_doc:20_comments:brp:q04:start| Return to Top]] |
| <table> | <table> | ||
| Line 128: | Line 137: | ||
| </WRAP>| | </WRAP>| | ||
| ^ B0004 ^ Protect consumer privacy|<WRAP> | ^ B0004 ^ Protect consumer privacy|<WRAP> | ||
| - | There is a fine line between collecting information about consumer transactions used to calculate the **Reserve Balance** for each bank and transgressing the required privacy requirements. See section [[cbdc:private:cbdc_omg:04_doc:15_common:45_privacy:start]]. | + | There is a fine line between collecting information about consumer transactions used to calculate the **Reserve Balance** for each bank and transgressing the required privacy requirements. See section [[cbdc:public:cbdc_omg:04_doc:15_common:45_privacy:start]]. |
| </WRAP>| | </WRAP>| | ||
| ^ B0007 ^ Provide households and businesses a convenient and electronic form of central bank money with: <WRAP> | ^ B0007 ^ Provide households and businesses a convenient and electronic form of central bank money with: <WRAP> | ||
| Line 154: | Line 163: | ||
| </WRAP>| | </WRAP>| | ||
| ^ B0025 ^ Serve as a new foundation for the payment system |<WRAP> | ^ B0025 ^ Serve as a new foundation for the payment system |<WRAP> | ||
| - | The CBDC could offer another mechanism to the existing non-cash mechanisms such as debit cards, credit cards, electronic transfers, and checks. However, in order to offer real-time settlements, it may need to use a different mechanism than the existing [[https://www.omgwiki.org/CBDC/doku.php?id=cbdc:private:04_cbdc_guide:06_append:glossary:a:ach Automated Clearing House (ACH) Network | Automated Clearing House (ACH) Network]] currently in use to electronically move money between banks accounts across the U.S. The current ACH network is run by an organization called Nacha, formerly the [[https://www.nacha.org/ | National Automated Clearing House Association (NACHA)]]. | + | The CBDC could offer another mechanism to the existing non-cash mechanisms such as debit cards, credit cards, electronic transfers, and checks. However, in order to offer real-time settlements, it may need to use a different mechanism than the existing [[https://www.omgwiki.org/dido/doku.php?id=dido:public:ra:xapend:xapend.a_glossary:a:ach | Automated Clearing House (ACH) Network]] currently in use to electronically move money between banks accounts across the U.S. The current ACH network is run by an organization called Nacha, formerly the [[https://www.nacha.org/ | National Automated Clearing House Association (NACHA)]]. |
| </WRAP>| | </WRAP>| | ||
| ^ B0026 ^ Provide a bridge between legacy and new payment services |<WRAP> | ^ B0026 ^ Provide a bridge between legacy and new payment services |<WRAP> | ||
| - | There definitely would need to be a bridge between the existing ACH-NACHA payment network and a U.S. CBDC, its associated Consensus Algorithms, and the network of nodes. However, in addition to the bridge between the two, there probably needs to exist a new consolidated frontend ([[https://www.omgwiki.org/dido/doku.php?id=dido:public:ra:xapend:xapend.a_glossary:a:api | Application Programming Interface (API)]]?) that abstracts the type of payment from the participants in the transactions. In other words, the transaction should be agnostic to the non-cash mechanisms such as debit cards, credit cards, electronic transfers, checks, and CBDC. | + | There definitely would need to be a bridge between the existing ACH-NACHA payment network and a U.S. CBDC, its associated Consensus Algorithms, and the network of nodes. However, in addition to the bridge between the two, there probably needs to exist a new consolidated frontend ([[https://www.omgwiki.org/dido/doku.php?id=dido:public:ra:xapend:xapend.a_glossary:a:api | Application Programming Interface (API)]]?) that abstracts the type of payment from the participants in the transactions. In other words, the transaction should be agnostic to non-cash mechanisms such as debit cards, credit cards, electronic transfers, checks, and CBDC. |
| </WRAP>| | </WRAP>| | ||
| ^ B0029 ^ Support basic purchases of: <WRAP> | ^ B0029 ^ Support basic purchases of: <WRAP> | ||
| Line 231: | Line 240: | ||
| ^ B0051 ^ Generate data about users’ financial transactions similar to the current Commercial Bank(( | ^ B0051 ^ Generate data about users’ financial transactions similar to the current Commercial Bank(( | ||
| Commercial banks include banks licensed either by federal or state banking agencies, credit unions, and thrifts from the **White Paper**. | Commercial banks include banks licensed either by federal or state banking agencies, credit unions, and thrifts from the **White Paper**. | ||
| - | )) and [[cbdc:private:cbdc_omg:8_append:20_glossary:nonbank_money]] |<WRAP> | + | )) and [[cbdc:public:cbdc_omg:8_append:20_glossary:nonbank_money]] |<WRAP> |
| </WRAP>| | </WRAP>| | ||
| ^ P0003 ^ Complement current forms of money and methods for providing financial services |<WRAP> | ^ P0003 ^ Complement current forms of money and methods for providing financial services |<WRAP> | ||
| Line 241: | Line 250: | ||
| ^ P0012 ^ The firms that operate interbank payment services are subject to federal supervision |<WRAP> | ^ P0012 ^ The firms that operate interbank payment services are subject to federal supervision |<WRAP> | ||
| Regardless of how the U.S. CBDC is implemented, for example Stablecoin, the [[https://www.omgwiki.org/dido/doku.php?id=dido:public:ra:xapend:xapend.k_consensus:start | Consensus Algorithms]] need to include all the rules outlined in sections | Regardless of how the U.S. CBDC is implemented, for example Stablecoin, the [[https://www.omgwiki.org/dido/doku.php?id=dido:public:ra:xapend:xapend.k_consensus:start | Consensus Algorithms]] need to include all the rules outlined in sections | ||
| - | [[:cbdc:private:cbdc_omg:04_doc:15_common:45_privacy:start]], | + | [[cbdc:public:cbdc_omg:04_doc:15_common:45_privacy:start]], |
| - | [[:cbdc:private:cbdc_omg:04_doc:15_common:48_natsec:start]], | + | [[cbdc:public:cbdc_omg:04_doc:15_common:48_natsec:start]], |
| - | and [[:cbdc:private:cbdc_omg:04_doc:15_common:50_international:start]]. | + | and [[cbdc:public:cbdc_omg:04_doc:15_common:50_international:start]]. |
| In other words, consensus includes the enforcement of the laws and regulations concerning Monetary Policy. | In other words, consensus includes the enforcement of the laws and regulations concerning Monetary Policy. | ||
| Line 288: | Line 297: | ||
| </WRAP>| | </WRAP>| | ||
| ^ D0005 ^ Design could affect monetary policy implementation and interest rate control by altering the supply of reserves in the banking system |<WRAP> | ^ D0005 ^ Design could affect monetary policy implementation and interest rate control by altering the supply of reserves in the banking system |<WRAP> | ||
| - | From a Monetary Policy perspective, only the **Reserve Balances** are important. As long as the **Reserve Balances** account for Cryptocurrency and U.S. CBDC balances there should be little impact on the Monetary Policy. | + | From a Monetary Policy perspective, only the **Reserve Balances** is important. As long as the **Reserve Balances** account for Cryptocurrency and U.S. CBDC balances there should be little impact on the Monetary Policy. |
| </WRAP>| | </WRAP>| | ||
| ^ D0009 ^ Design should allow for significant foreign demand for CBDC, further complicating monetary policy implementation |<WRAP> | ^ D0009 ^ Design should allow for significant foreign demand for CBDC, further complicating monetary policy implementation |<WRAP> | ||
| Line 302: | Line 311: | ||
| See answers to **''B0025''**, and **''B0025''** above. | See answers to **''B0025''**, and **''B0025''** above. | ||
| </WRAP>| | </WRAP>| | ||
| - | | **''B''** = [[cbdc:private:cbdc_omg:04_doc:12_summary:start#benefits| Benefit Considerations ]] ||| | + | | **''B''** = [[cbdc:public:cbdc_omg:04_doc:12_summary:start#benefits| Benefit Considerations ]] ||| |
| - | | **''P''** = [[cbdc:private:cbdc_omg:04_doc:12_summary:start#policy_considerations| Policy Considerations]] ||| | + | | **''P''** = [[cbdc:public:cbdc_omg:04_doc:12_summary:start#policy_considerations| Policy Considerations]] ||| |
| - | | **''R''** = [[cbdc:private:cbdc_omg:04_doc:12_summary:start#risks| Risk Considerations ]] ||| | + | | **''R''** = [[cbdc:public:cbdc_omg:04_doc:12_summary:start#risks| Risk Considerations ]] ||| |
| - | | **''D''** = [[cbdc:private:cbdc_omg:04_doc:12_summary:start#design| Design Considerations]] ||| | + | | **''D''** = [[cbdc:public:cbdc_omg:04_doc:12_summary:start#design| Design Considerations]] ||| |
| </table> | </table> | ||
cbdc/public/cbdc_omg/04_doc/20_comments/brp/q04/start.1652472652.txt.gz · Last modified: 2022/05/13 16:10 by terrance
