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On Thursday, March 4, Jean-Pierre Landau joined Markus’ Academy for a lecture on International Currency Competition: The Digital Dimension. Landau is an associated professor and researcher at SciencesPo in the department of economics and the former Deputy Governor of the Banque de France.

Watch the full presentation below and download the slides here. You can also watch all Markus’ Academy webinars on the Markus’ Academy YouTube channel.

Executive Summary

  • Libra was a wake up call for the international monetary community. The size of the Facebook network that made Libra  instantly credible as a medium of exchange. It was also a cross border network and introduced a new unit of account that was a direct infringement on monetary sovereignty.  While the project faced intense pushback from regulators it also served to stimulate innovation in fast domestic and  cross border payments. It increased awareness of financial exclusion.
  • After Libra, there was an explosion in interest in Central Bank Digital Currencies (CBDCs). China, amongst many other countries, is having pilot phases and plans on introducing CBDCs soon.
  • Digitalization may destabilize the equilibrium between private and public money in our societies. First, because it may lead to the disappearance of cash, which is the only form of public money accessible to ordinary citizens. Second, it may threaten the uniformity of currency if new forms of (for instance programmable) payment instruments develop. And, third, it raises the issue of data and privacy. Data collection is at the core of the business model of platforms as money systems and this treatment of data makes policy makers wary.
  • A triple Governments’ response. In recent years, governments have increased regulation, pushed for CBDCs, and accelerated fast payments. In implementing CBDCs,  Central banks will have to face tradeoffs — they don’t want to disintermediate the banks but also have to consider a potential loss of privacy for small payments.
  • As regards international currency competition, digitalization will potentially increase the use of those currencies that have digitally developed as medium of exchange (China). Some versions of the dominant currency paradigm assert that this is how internationalization of money occurs – through network externalities linked to trade and payments. However, in a world where there is a strong and permanent demand for safe and liquid assets for precautionary reasons (e.g. to fend off a sudden stop equilibrium jump), it may be that the demand for safe assets is a more decisive feature than the international medium of exchange role.