Blockchain Papers

Sophia Kuehnlenz, Bianca Orsi, Annina Kaltenbrunner

No abstract is available for this record.

Michael Darlin, Georgios Palaiokrassas, Leandros Tassiulas

The rise of Decentralized Finance (“DeFi”) on the Ethereum blockchain has enabled the creation of lending platforms, which serve as marketplaces to lend and borrow digital currencies. Initially, we categorize the activity of lending platforms within a standard regulatory framework. We then propose an Ethereum address grouping algorithm using activity over DeFi protocols and employ a novel classification algorithm to calculate the percentage of fund flows into DeFi lending platforms that can be attributed to debt created elsewhere in the system (“debt-financed collateral”). Based on our results, we conclude that the wide-spread use of stablecoins as debt-financed collateral increases financial stability risks in the DeFi ecosystem.

Vachira Arromdee, Tunyathon Koonprasert

With the belief that Distributed Ledger Technology (DLT) holds the promise of bringing greater efficiency, inclusion and innovation to the financial system, the Bank of Thailand (BOT) began research and development of a proof-of-concept central bank digital currency (CBDC) utilising DLT for wholesale domestic and cross-border funds transfers, beginning with Project Inthanon in 2018. A proof-of-concept corporate CBDC was also subsequently developed, and the exploration of a retail CBDC for the general public is currently under way. In this paper, we discuss the important findings and considerations of each CBDC project. We found that DLT can increase efficiency in both domestic payment systems as well as cross-border transactions by enabling direct transfers between parties and providing enhanced programmability through the use of smart contracts. Several technical shortcomings still exist and will need to be reevaluated. Furthermore, studies on governance structure, regulatory issues and implications of CBDC for monetary policy, financial stability and the future financial landscape must be carried out before proceeding to develop production-ready systems and networks.

Madhubala Maurya

In this chapter, I have analyzed economic thoughts of Dr. B. R. Ambedkar, mainly economic ideas reflected in his writings such as, ‘The Problem of Rupee: Its origin and its solution’, ‘The Evolution of Provincial Finance in British India: A Study in the Provincial Decentralization of imperial finance’, It can be said that Indian economy at present is facing many problems similar to that at the time of Dr. B. R. Ambedkar as instability of money leading to inflation, its socioeconomic implications and its unequal effects on various strata of society, uneconomical public expenditure and rising fiscal deficits, increasing inequalities of income and wealth, and so on. Are Ambedkar’s economic thoughts relevant to understand these problems as well as to provide its solutions? Analyzing his economic ideology, it can be said that India could have been more inclusive if his ideas had been followed in its true spirit. So we can say that India needs to follow his economic ideology in her short term as well as long term economic planning and policy making to shape Inclusive India.

Alan G. Futerman, Ivo A. Sarjanovic

No abstract is available for this record.

Neil Shenai

No abstract is available for this record.

RAKSHIT MADAN BAGDE

No abstract is available for this record.

Axel Wieandt, Laurenz Heppding

The financial crisis of 2007-08 revealed that centralized finance (CeFi) relying on large, interconnected financial institutions is easily destabilized. Since the crisis, significant regulatory tightening, monetary easing, and new competitors (e.g., fintechs) have created significant pressure on profit margins and CeFi business models. Recently, a new form of financial intermediation that functions independently of centralized intermediaries has emerged, namely decentralized finance (DeFi). DeFi relies on public, permissionless blockchains and uses so-called smart contracts to perform financial services such as borrowing, lending, and trading in a transparent and automated fashion. The paper gives an overview of DeFi and discusses its advantages and disadvantages compared to CeFi. We analyze different scenarios about the future paths of CeFi and DeFi, concluding that a convergence scenario is most likely.

Ashwath Komath

John Maynard Keynes proposed the concept of ‘Bancor’ in 1940 as a supranational currency that would serve as the international reserve currency. The concept did not take off at the time, despite the underlying need to liberate the international system from the hegemonic tendencies of a national currency serving as a global medium of exchange. The emergence of Bitcoin makes it possible to revive the idea of a de-nationalised global medium of exchange. This article examines the feasibility of such an idea by examining a viable state policy for adoption and use in the international realm.

Vasile Cocriş

We ask ourselves: could we have an exclusively economic view on the currency? This question should first come up to our minds when we study the currency phenomena. If the contributions of other social sciences, as anthropology, psychology, philosophy, or history are of a certain interest for the economic sciences, in general, this is even truer for the economic sciences, where the historical approach helps to clarify the true implications of the present as the multidimensional aspect of the currency.

Matthew Sparkes

No abstract is available for this record.

Martin Chorzempa

In only a few years, central bank digital currencies (CBDC) have gone from a fringe idea promoted by cryptocurrency bloggers to an idea being seriously explored by 80% of the world’s major central banks, including the People’s Bank of China and the United States Federal Reserve. This paper gives an overview of the drive at the world’s central banks to evaluate CBDCs and examines the reasons behind the world’s two leading economies’ stark divergence in central bank digital currency development. China committed much earlier to launching a CBDC, doing so in early 2016, and has since taken more concrete steps towards piloting and issuing a CBDC than the Fed, which has yet to commit to ever issuing one.

Giovanni Dosi, Joseph E. Stiglitz

The Editorial Board of Industrial and Corporate Change is pleased to announce its newest venture as part of ICC’s ongoing commitment to highlighting important issues in management, economics, and business. With this Special Issue ICC launches an annual Special Issue devoted to the theme of Macro Economics and Development. As important economists early recognized, the crisis of 2008 fully exposed the inability of macroeconomic theory to account for the possibility of macroeconomic crises as well as deep and long-lasting downturns. This theoretical crisis rests at the very foundations of mainstream economics with its strict commitment to the equilibrium and far-sighted “rationality” of a fictitious representative agent. Unfortunately, a good deal of the intellectual efforts of macroeconomists since the crisis has gone into adding “epicycles” to an already baroque Ptolemaic construction, namely DSGE (Dynamic Stochastic General Equilibrium modeling), by means of a new wave of frictions and rigidities and, in few cases, homeopathic doses of heterogeneity and bounded rationality. In the view of the Editors of this ICC Special Issue such patchwork is far from sufficient. We need a radical departure with radically different foundations. And we need some prestigious venues, where likeminded scholars, especially younger ones, can publish and debate without the tyranny of the “top five” journals, whose conservatism prevents new ideas and approaches from blossoming.1 This overriding purpose drives the launching of this first annual ICC Special Issue.It is proposed by a group of scholars who strongly agree on some propositions (and do not disagree too much on a few others).2 A non-exhaustive list of such propositions would include the following: The economy has to be analyzed as a complex evolving system. Evolution is driven by (partly endogenous) technological, organization, and institutional change. Complexity stems already from the interactions among multiple agents. Heterogeneities are ubiquitous in terms of access to information, capabilities, “models of the world,” and decision processes. More is different. There is no isomorphism between micro behaviors and more aggregate dynamics. The latter is not simply the sum of micro entities but the outcomes of their interactions, most often out-of-equilibrium ones. (Varying degrees of) aggregate order is likely to be an emergent property, stemming from out-of-equilibrium interactions. Dynamics ought to be taken very seriously. Any analysis of the properties of any equilibrium ought to be ideally accompanied by the answers to the question: “how did one get there?”. All this does not rule out the usefulness of simpler, equilibrium models allowing full rationality but taking seriously heterogeneity in information access and capabilities. However, the imperative is that simple models must have even more so properties: if any result applies to simple equilibrium and rationality set-ups, it has to apply even more so to environments where such assumptions cannot apply. In a complex evolving system, it is simply unfeasible to ever achieve an environment of complete markets, which implies that there is no way to ensure that economic plans that involve debt and credit will always be consistent. Thus, it is possible that the system falls into a state of macroeconomic disequilibria associated with intertemporal coordination failures—the failure of a decentralized market economy to deliver a solution that satisfies all equilibrium conditions in a dynamic environment, a theme that macroeconomic theories that intend to shed light on the phenomenon of macroeconomic and debt crises must tackle without assuming the problem away by construction—as in DSGE models. The nature of learning, capabilities accumulation, and innovation is central to the analysis of growth and development. Together, so are the properties of industrial dynamics, structural change, and inter-sectoral interactions. In that setting, supply and demand dynamics interact both in the short- and long-term. Non-linearities are widespread. Learning as such is intrinsically associated with dynamic increasing returns. Those in turn normally involve multiple equilibria and trajectories which are inevitably path dependent. History counts. Such system dynamics are likely to display self-organized criticalities, hysteresis, tipping points, and irreversibilities. The search of proximate laws of motions ought to be encouraged—on, for example, multipliers, accelerators, “learning curves,” as in the cases of Lotka-Volterra processes and Kaldor-Okun laws. Uncertainty in complex evolving environments is endogenous and radical in a Knightian sense: there is no hope of reducing it to probabilizable risk. In such a framework, bounded rationality should not be considered an imperfection, a departure from the fully rational equilibrium case, but rather as the way that agentsbehave, adapt, and learn in a complex environment. In such a framework, often less ismore: in the presence of radical uncertainty, which is quite ubiquitous, one needs to relyon heuristics or other simple rules. The dynamics of socioeconomic systems is nested in a rich thread of institutions and is influenced by a large ensemble of policies which also shape the patterns of interactions and the behaviors of the agents. Inequality is an endemic property of the system and it affects its short- and long-term performance. Its drivers and the policies to curb it ought to be under the spotlight. Finance is not just a “veil” but interacts and influences real dynamics and income distributions. Markets do not work in a vacuum. The functioning of a market economy depends on the laws, rules, norms, and institutional structures under which it operates, all determined by power relations; and the outcomes it produces affect the distribution of power itself. The co-evolution between climate warming and economy should be carefully studied from a complexity perspective, considering the implications for the very survival of humankind and the possible pathways to achieve sustainable growth. Macroeconomics is not an island: we ought to learn from other disciplines, and interdisciplinarity should be encouraged. All these points carry strong policy implications, and our Marco Economics and Development annual Special Issue will encourage their exploration. In support of its aims, the ICC Special Issue will target, among others, the following topics for papers: All macro models focusing on the consequences of heterogenous information and coordination failures. ABM (macro but also at lower levels of aggregation). Models of endogenous macroeconomic and financial instability. Models of macroeconomic and financial crises emergence and resolution. Evolutionary models of growth and development. Networks (with general macro implications). Empirical and theoretical analyses of labor markets and labor relations. Income distribution and inequalities. Trade and development. Post-Keynesian macro analyses. Any empirical papers (such as those by, e.g., G. Katona and G. Gigerenzer) and experimental papers that provide evidence about the behavior of agents, markets, and institutions. Any works that improve agent-based validation, estimation, sensitivity analysis. Applied macroeconometrics addressing complexity, such as, e.g., nonlinearity, heterogeneity. Empirical and theoretical works studying the economic impact of climate change and coevolution between climate and economic dynamics. Political economy written large with special attention to socioeconomic phenomena. Interdisciplinary papers with a macro flavor. Economic history papers related to crises, growth, development, but also to the working of institutions and markets. Analyses of policies, including the reflections of actual policy makers. General topics, including: macroeconomics, debt, development, institutions, climate change, political economy, socioeconomic, and political history. By launching this first of annual special issues on Macro Economics and Development, the ICC Editors are confident that they will be offering original and pathbreaking contributions at this pivotal time of reassessing and restructuring theory and policy into the foreseeable future. e-mail: jes322@columbia.edu

Andrew Tynes

No abstract is available for this record.

Ewa Dziwok

No abstract is available for this record.

David Murakami, Ganesh Viswanath-Natraj

We rationalize cryptocurrency adoption in a small open economy model. We show that digital dollarization, where stablecoins pegged to the USD are used for transactions, can improve social welfare. In contrast, the adoption of volatile cryptocurrencies, such as El Salvador’s 2021 decision to make Bitcoin legal tender, results in welfare losses. This outcome aligns with the observed low take-up of Bitcoin as legal tender. The welfare benefits of digital dollarization increase with the magnitude of macroeconomic shocks, providing motivation for the growing use of stablecoins in emerging markets as a safeguard against high inflation and macroeconomic instability .

Parv Aggarwal

This study explores the existing systemic barriers to intra-BRICS national currency use (“de-dollarization”) in currency swaps and trade finance. The author examines the current de-dollarization initiatives, as well as the actual levels of de-dollarization in Russia’s intra-BRICS settlements (as a representative sample), to find gaps between de-dollarization goals and current initiatives and offers a near-term phased solution to overcome these gaps and de-risk trade within BRICS. It is found that 1) the New Development Bank’s Contingency Reserve Arrangement has built-in systemic barriers which are preventing direct currency swaps between BRICS member states; 2) the Euro is replacing the Dollar as Russia’s preferred settlement currency within BRICS, indicating a gap between Russian traders’ settlement currency choice and BRICS de-dollarization priorities; and, furthermore, 3) while payment and settlement systems are being integrated and FinTech applications are being explored, efforts to fundamentally address the systemic market factors preventing national settlement use are missing. A phased solution is proposed to address the fundamental market barriers to national currencies by using smart contracts to de-risk intra-BRICS trade. Specific mechanisms are outlined to promote trade contracts in national currency and reduce dependency on both the Dollar/Euro and Western institutions (such as the IMF and Western commodities markets), a high-level architecture is proposed, and implementation considerations are discussed.

John E. Marthinsen, Steven R. Gordon

No abstract is available for this record.

Andrej Ilievski

The aim of the paper is to examine the impact of fintechon central banks and policy objectives, butalso, the role of central banks in enabling fintech in fulfilling its promises. Namely, for the financial sector fintech promises shorter, speedier transactions; greater capital efficiency; and stronger operational elasticity. For consumers, fintech promises opportunities, both in form of new products and services but also in improving the existing one at lower costs. In general, fintech promises a more inclusive financial system, with people better connected, more informed and increasingly empowered. In order to support the development of fintech central banks should consider many aspects like: exploring the use of distributed ledger technology (DLT), partnering with fintech companies and calibrating its regulatory approach to fintech developments.

Christian Calliess

The European Union (EU) is under pressure. Crises, undesirable developments, and loss of confidence are mixed up into a diffuse picture of justified criticism, unease, ignorance, and populist rejection. Paradoxically, perhaps the fact that the EU, with all of its advantages, is so naturally present in the everyday lives of citizens today implies a risk for future of European integration. What is taken for granted may suddenly dissolve, not overnight, but in a creeping process that will only be realized in a historical retrospective. The EU has been in a crisis mode for several years now,12 culminating in a ‘poly-crisis’ in 2016. With the global financial crisis and the crisis in the euro area fuelled by it,3 as well as the migration and security crisis in the ‘area of freedom, security and justice’ (the so-called Schengen Area),4 it became evident that two of the integration steps initiated with the Maastricht Treaty in 1992 had led to ‘fair weather areas’ that were not sufficiently prepared for stormy times. In addition, Brexit has, for the first time, confronted the EU with the challenge of dealing with the withdrawal of a member state in organizational (Article 50 of the Treaty of European Union (TEU)) and—behind the scenes—in political terms: The impression of an EU in constant crisis, unable to deliver solutions and stability is supposed to be one of the—many—reasons for the negative result of the British referendum in 2016.5 There can be no doubt that European integration has been a successful project for peace, one which started in 1951 with the creation of a common market for coal and steel (European Coal and Steel Community (ECSC) Treaty). It was in this spirit that the Treaty on the European Economic Community (EEC Treaty) of 1957 emphasized in its preamble the goal of an ‘ever closer union’, in the course of which the integration of the national economies into a single market was to serve to secure peace and motivate Europe’s states and peoples subsequently to pursue political integration too. With the EEC Treaty and the 1985 White Paper on the completion of the internal market, including the limited 1986 reform treaty (the Single European Act), a European single market gradually came into being. Implementation of the single market brought in its wake the Europeanization and partial harmonization of flanking policies, resulting in the development of European environment, health, consumer protection and—in part—social policies.6 This made the EU a European community of values, a process reinforced by the 1992 Maastricht Treaty: drawing lessons from the dictatorships of the twentieth century, it guarantees human rights, democracy, and the rule of law.7 However, what has been achieved threatens to erode: a common and efficient response to the crises is made difficult because there is no consensus, either among the 27 among European on the and future of the EU This is not to the fact that in the euro area on as the Europeanization of financial and with for national In the Schengen no are in the area of a European and including internal security with to the European internal market, the of which is to as a result of and the with it and in the of and a difficult to In an EU that has 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Adam Głogowski

Although technological advances have always been readily adopted into finance, the current wave of technology-enabled financial innovation – driven by advances in data transmission and processing – is notable for its influence on the structure of the provision of financial services. The chapter starts by reviewing the drivers and forms of technology-enabled innovations in financial services. The next section reviews the impact of innovations on the structure of the financial system including competition dynamics between traditional and new financial service providers, including large technology companies. As the business model of large technology companies is based on their capacity to collect and analyze data on their customers (which is fundamental to the provision of financial services) and involves positive network externalities, large technology companies can gain significant market share in financial services. On the other hand, decentralization and disintermediation of financial services may reduce risk exposure of financial intermediaries but systemic risks borne by the real sector may stay unchanged. The potential changes in the financial system structure are then assessed from the point of view of systemic risk, using the framework of intermediate objectives of macroprudential policy developed by the ESRB as a typology of systemic risk. Finally, implications for public policy are presented. It is argued that in order to counter systemic risk, an integrated analysis and policy response is warranted, covering the fields of financial stability, competition policy, data and consumer protection. JEL classification: G21, G28, O33, E51.

Olivier Accominotti, Stefano Ugolini

Abstract This chapter describes how the structure and governance of international trade finance—the oldest domain of international finance—evolved from the Middle Ages until today. Trade finance products initially consisted of idiosyncratic assets issued by local merchants and bankers. The financing of international trade then became increasingly centralized and credit instruments were standardized through the diffusion of the local standards of consecutive leading trading centers (Antwerp, Amsterdam, London). This process of market centralization/product standardization culminated in the nineteenth century when London became the global center for international trade finance and the sterling bill of exchange emerged as the most widely used trade finance instrument. The structure of the trade finance market then evolved considerably following World War I and disintegrated during the interwar deglobalization and Bretton Woods period. The reconstruction of global trade finance in the post-1970 period gave way to the decentralized market structure that prevails nowadays.

Sebastian Grund

Abstract The European sovereign debt crisis and, more recently, the COVID-19 pandemic have revealed the European Economic and Monetary Union’s fragility, which essentially emanates from the inherent tension between a single monetary policy and decentralized fiscal policies. To cushion economic and financial shocks and sever the sovereign-bank doom loop, different proposals to create a common public debt security have been put forward, although none of them has so far seen the light of day. Building on pertinent economic and finance scholarship, this article reviews four promising safe asset proposals from a legal perspective: Sovereign bond-backed securities (SBBS), E-bonds, Purple bonds, and Coronabonds. Rather than focusing on their feasibility under EU law or national constitutional law, this article compares the proposals from an investor perspective against the backdrop of the following formal and functional legal characteristics that render assets ‘safe’: governing law, dispute settlement forum, investor protection, and investor representation in sovereign debt restructurings. Against this backdrop, targeted recommendations on critical design elements of safe assets, with the aim of reconciling the economic policy objectives with the pertinent legal constraints, are advanced.

Michael A. Peters, Ben Green, Haiyang Yang

The Central Bank of China is testing its Digital Currency Electronic Payment (DCEP) in the cities of Shenzhen, Suzhou, Chengdu and Xunan with the involvement of four large state-owned banks in the ...