Dirk Niepelt

On his blog, John Cochrane argues that banks could, and should be 100% equity financed. His points are: (1) There are plenty of safe assets—government debt—out there and banks do not need to “create” additional safe assets—deposits. I share this view partly. First, I don’t know what amount of safe assets are sufficient from a social point of view. Second, I don’t consider government debt to be a safe asset. Third, debt has safety and liquidity properties. The question is not only whether...

On Alphaville, Matthew Klein points out that covered interest parity (dollar vs. yen) is alive and kicking again. It wasn’t during much of 2016. The Reserve Bank of Australia exploited the arbitrage opportunity. Previous post on the topic, and another one.

NBER Working Paper 23864, September 2017, with Tamon Asonuma and Romain Ranciere. PDF. (Local copy.) Rejecting a common assumption in the sovereign debt literature, we document that creditor losses (“haircuts”) during sovereign restructuring episodes are asymmetric across debt instruments. We code a comprehensive dataset on instrument-specific haircuts for 28 debt restructurings with private creditors in 1999–2015 and find that haircuts on shorter-term debt are larger than those on debt...

In an NBER working paper and a column on VoxEU, Michael Bordo and Andrew Levin make the case for central bank issued digital currency (CBDC). Bordo and Levin favor an account-based CBDC system (managed or supervised by the central bank) rather than central bank issued tokens in the blockchain. They emphasize the Friedman rule and the fact that interest paying CBDC affords the possibility to satisfy the rule: These … goals – … a stable unit of account and an efficient medium of exchange –...

On Alphaville, Izabella Kaminska questions the utility settlement coin project (for an update on the project, see Martin Arnold’s recent FT article). She suspects that USC isn’t really a blockchain project as much as a market infrastructure project — even if it leans on blockchain jargon for the purpose of gaining popular momentum. … On paper, the technology promises to un-encumber cash collateral by creating a much more reliable form of distributed settlement, requiring a fraction of the...

In a BIS Quarterly Review article, Morten Bech and Rodney Garratt offer a taxonomy of money, with special emphasis given to central bank issued digital and crypto currency. They stress four dimensions: issuer (central bank or other); form (electronic or physical); accessibility (universal or limited); and transfer mechanism (centralised or decentralised). The taxonomy defines a CBCC as an electronic form of central bank money that can be exchanged in a decentralised manner known as...

On Alphaville, Izabella Kaminska asks why a central bank would want to issue cryptocurrency rather than conventional digital currency. … if anonymity is not the objective of issuing a centrally supervised cryptocurrency, what really is the point of using blockchain or crypto technology? Just issue a conventional digital currency and be done with it. If, on the other hand, anonymity is the objective of issuing a centrally supervised cryptocurrency, how can this be justified by a central...

On VoxEU, David Blanchflower and Andrew Oswald argue that it exists. Overall, we think there is a great deal of evidence – though we have critics, especially among a small group of social psychologists – that humans experience a midlife psychological ‘low’. The midlife decline in wellbeing is apparently substantial and not minor … It should perhaps be emphasised that the midlife low is not affected by regression-equation controls for having young children, nor by changing the exact nature...

Ivan K. Aivazovsky, 1883

The Economist reports that according to estimates, undoing identity fraud can take an average of six months and 100 to 200 hours of a person’s time. In addition there is the risk of substantial financial losses due to identity fraud. Suppose a data breach exposes personal information of 1 million people. As a consequence, 0.1% of the affected persons suffer financial costs of $100 each, and all affected persons spend 100 hours to undo the damage. Suppose the average wage of the affected...