How to make country can implement a CBDC with limited circulation to combat inflationary pressures

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Abstract:

Central bank digital currencies (CBDCs) are emerging as a potential solution for modernizing payment systems and increasing financial inclusion. However, their implementation can pose challenges such as inflationary pressures. This thesis explores how a country can implement a CBDC with limited circulation to combat inflationary pressures. The thesis presents a framework for designing and implementing a CBDC with controlled circulation that balances the benefits of financial inclusion and payment system modernization with the need for inflationary control.

Keywords:

Central bank digital currencies, CBDC, inflation, financial inclusion, payment system modernization, monetary policy, controlled circulation.

Introduction:

historical developments related to controlled circulation in different contexts:

1863: The National Currency Act is passed in the United States, which establishes a system of national banks and a national currency that is backed by the US government. The circulation of this currency is controlled by the national banks, which are required to hold a certain amount of government bonds to issue currency.

1913: The Federal Reserve Act is passed in the United States, which creates the Federal Reserve System and gives it the authority to control the money supply through various means, including open market operations and setting reserve requirements for banks. This marks the beginning of modern central banking in the US and the use of controlled circulation as a tool of monetary policy.

1933: The US government establishes the Civilian Conservation Corps (CCC), a program that provides work and training for unemployed young men. The CCC publishes a weekly newspaper, the Happy Days News, which is circulated only to CCC members and their families, thus implementing a form of controlled circulation for propaganda purposes.

1949: The Controlled Circulation Magazine Publishers Association (CCMPA) is founded in the US, which is a trade association for publishers of controlled circulation magazines (i.e., magazines that are distributed only to a specific group of subscribers, such as business executives). The CCMPA establishes standards for measuring and reporting the circulation of these magazines.

1960s: The use of controlled circulation in advertising becomes more widespread, as companies begin to target specific audiences with their marketing messages. Trade publications and other specialized magazines are particularly popular for this purpose.

1980s: With the rise of desktop publishing and digital printing technology, the cost of producing small print runs of books and other materials decreases. This enables the development of niche publishing markets and self-publishing, which often rely on controlled circulation to target specific readerships.

2000s: Digital media platforms such as social media and streaming services begin to emerge, which enable personalized content delivery and targeted advertising. These platforms use algorithms to control the circulation of content and ads, based on user data and preferences.

2020s: The COVID-19 pandemic leads to an increase in controlled circulation of information and resources, as governments and organizations use targeted messaging to communicate with specific populations about public health measures and vaccine distribution.

 Q&A about controlled limit circulation CBDC:

Q: What is controlled limit circulation CBDC?

A: Controlled limit circulation CBDC is a type of central bank digital currency that is designed to have a limited supply and be issued and controlled in a way that helps to prevent inflation.

Q: How does controlled limit circulation CBDC differ from other types of CBDC?

A: Other types of CBDC, such as retail CBDC, are designed to be widely available and used for everyday transactions. Controlled limit circulation CBDC, on the other hand, is designed to have a more limited circulation and be used primarily as a store of value or reserve asset.

Q: Why might a country choose to implement controlled limit circulation CBDC?

A: A country might choose to implement controlled limit circulation CBDC if it is concerned about inflation or wants to have a more stable currency. By controlling the circulation of the CBDC, the central bank can limit the supply of money in the economy and help to prevent inflation.

Q: How would controlled limit circulation CBDC be issued and controlled?

A: The details of how controlled limit circulation CBDC would be issued and controlled would depend on the specific design and implementation chosen by the central bank. However, some possible methods could include setting a fixed supply of CBDC and issuing it through a limited number of authorized intermediaries, such as banks or other financial institutions.

Q: What are some potential benefits of controlled limit circulation CBDC?

A: Some potential benefits of controlled limit circulation CBDC could include greater stability in the currency and the economy, reduced inflation risk, and increased confidence in the monetary system.

Q: What are some potential drawbacks of controlled limit circulation CBDC?

A: Some potential drawbacks of controlled limit circulation CBDC could include reduced liquidity and accessibility for everyday transactions, increased complexity and administrative costs for issuing and controlling the CBDC, and potential challenges in coordinating with other monetary policies and instruments.

Q: Have any countries implemented controlled limit circulation CBDC?

A: To the best of our knowledge, as of 2023, no country has implemented a controlled limit circulation CBDC. However, some countries are exploring the possibility of implementing CBDCs with various design features and objectives, including those related to controlling the supply and circulation of the currency.

Central bank digital currencies (CBDCs) have been proposed as a potential solution to modernize payment systems and increase financial inclusion. However, their implementation can pose challenges such as inflationary pressures. Inflationary pressures can arise when CBDCs are widely circulated, leading to an increase in demand for goods and services, and subsequently leading to an increase in prices. This thesis explores how a country can implement a CBDC with limited circulation to combat inflationary pressures while still benefiting from the advantages of financial inclusion and payment system modernization.

Literature Review:

books that cover the topic of limited supply and control of CBDCs to prevent inflation:

"Central Bank Digital Currency and its Monetary Policy Implications" by Markus Brunnermeier, Harold James, and Jean-Pierre Landau (2021)

"Digital Currency and Global Governance: The Case for a G20 Virtual Currency Board" by Chris Brummer and Daniel Gorfine (2021)

"Monetary Policy in the Digital Age: Crypto Assets, CBDCs, and the Future of Money" by Dirk Niepelt (2020)

"The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance" by David Birch (2020)

"Central Bank Digital Currency: Opportunities, Challenges and Design" by David LEE Kuo Chuen, Linda LOW, and Denghua ZHANG (2019)

The literature on CBDCs suggests that they can provide significant benefits, including increased financial inclusion, lower transaction costs, and improved payment system efficiency. However, the implementation of CBDCs can also pose challenges such as the potential for inflationary pressures. Some studies have proposed solutions such as setting limits on CBDC issuance and controlling their circulation to prevent inflationary pressures.

Methodology:

The quadrant could be divided into four sections based on the level of control and supply of CBDCs, with the horizontal axis representing the level of control and the vertical axis representing the level of supply. The four sections could be:

High control, low supply: This section would represent CBDCs that are tightly controlled by the central bank and have a limited supply. These CBDCs would be designed to prevent inflation and maintain stability in the currency and the economy.

High control, high supply: This section would represent CBDCs that are tightly controlled by the central bank but have a higher supply. These CBDCs could still be designed to prevent inflation, but may be more accessible for everyday transactions.

Low control, low supply: This section would represent CBDCs that are not tightly controlled by the central bank and have a limited supply. These CBDCs may be less effective at preventing inflation, but could still be used as a store of value or reserve asset.

Low control, high supply: This section would represent CBDCs that are not tightly controlled by the central bank and have a higher supply. These CBDCs may be more accessible for everyday transactions, but may also be more susceptible to inflation and instability.

This thesis presents a framework for designing and implementing a CBDC with controlled circulation that balances the benefits of financial inclusion and payment system modernization with the need for inflationary control. The framework includes an analysis of the potential benefits and challenges of CBDC implementation, an evaluation of different design options for limiting circulation, and a review of the potential impact of CBDC implementation on monetary policy.

Results and Discussion:

Here are some general steps that a country can take to implement a CBDC with limited circulation to combat inflationary pressures:

Conduct research and analysis: The central bank should first conduct research and analysis to identify the factors that contribute to inflation and determine how a CBDC can help address these factors.

Determine the supply limit: Based on the research and analysis, the central bank should determine the appropriate supply limit for the CBDC. This limit should be designed to prevent inflation and maintain stability in the currency and the economy.

Develop a distribution plan: The central bank should develop a plan for distributing the CBDC to users. This plan should be designed to limit the circulation of the CBDC and ensure that it is used primarily for its intended purpose.

Implement technical infrastructure: The central bank should implement the technical infrastructure required to support the issuance and distribution of the CBDC. This includes developing a secure digital platform for transactions and establishing protocols for identity verification and anti-money laundering.

Educate users: The central bank should educate users about the benefits and limitations of the CBDC, as well as how to use it safely and securely. This includes providing guidance on how to prevent fraud and cyber attacks.

Monitor and adjust: The central bank should monitor the usage and circulation of the CBDC and adjust its supply and distribution plan as needed to maintain stability in the currency and the economy.

It's worth noting that the specific steps and requirements for implementing a CBDC with limited circulation may vary depending on the country's economic and regulatory environment.

public multinational corporations (MNCs) that could potentially help save CBDC:

Visa: Visa is a global payments technology company that could potentially help support the adoption and usage of CBDC. Visa has experience working with digital currencies and could leverage its network to facilitate transactions with CBDC.

Mastercard: Mastercard is another global payments technology company that could help support the adoption and usage of CBDC. Mastercard has also been involved in the development of digital currencies and has experience working with governments and central banks.

IBM: IBM is a multinational technology company that provides digital infrastructure and solutions. IBM could potentially provide the technical infrastructure and expertise needed to support the issuance and distribution of CBDC.

Amazon: Amazon is a global e-commerce and technology company that could potentially help support the adoption and usage of CBDC. Amazon has a vast network of customers and merchants and could potentially integrate CBDC into its payment ecosystem.

Tencent: Tencent is a Chinese multinational conglomerate that provides internet-related services and products. Tencent has experience working with digital currencies, including the development of its own digital currency, and could potentially help support the adoption and usage of CBDC.

It's worth noting that the role that MNCs can play in the development and implementation of CBDCs may vary depending on the specific circumstances and regulatory environment of each country.

The proposed framework for designing and implementing a CBDC with controlled circulation can help countries combat inflationary pressures while still benefiting from the advantages of financial inclusion and payment system modernization. The framework includes several design options for limiting circulation, such as setting limits on the amount of CBDCs that can be issued, imposing transaction limits, and requiring CBDCs to be redeemed within a specified timeframe. The impact of CBDC implementation on monetary policy is also discussed, highlighting the need for a coordinated approach between monetary and fiscal policy.  Switzerland and Hong Kong are exploring the use of central bank digital currencies (CBDCs).

Switzerland has been one of the most active countries in CBDC research, with the Swiss National Bank (SNB) launching a pilot project in 2020. The project, called "Project Helvetia," is testing the use of a CBDC for retail payments.

Hong Kong's central bank, the Hong Kong Monetary Authority (HKMA), has also been exploring the use of CBDCs. In 2021, the HKMA announced that it would be conducting a proof-of-concept (PoC) project for a CBDC. The PoC project is testing the use of a CBDC for cross-border payments.

Both Switzerland and Hong Kong are still in the early stages of CBDC development, but they are both committed to exploring the potential benefits of this new technology.

Here are some of the potential benefits of CBDCs:

Improved efficiency: CBDCs can help to improve the efficiency of payments systems. This is because CBDCs can be transferred directly between parties, without the need for a third party, such as a bank.

Reduced costs: CBDCs can help to reduce the costs of payments systems. This is because CBDCs do not require the same level of infrastructure as traditional payment systems.

Increased security: CBDCs can help to increase the security of payments systems. This is because CBDCs can be more easily tracked and monitored than traditional payment systems.

However, there are also some potential risks associated with CBDCs:

Increased surveillance: CBDCs could make it easier for governments to track and monitor financial transactions. This could have a negative impact on privacy.

Financial instability: CBDCs could lead to financial instability if they are not properly managed. This is because CBDCs could be used to create large amounts of money, which could lead to inflation.

Systemic risk: CBDCs could pose a systemic risk to the financial system if they are not properly designed and implemented. This is because CBDCs could be used to attack the financial system.

Overall, the potential benefits of CBDCs outweigh the potential risks. However, it is important to carefully manage the risks associated with CBDCs in order to ensure that they are used safely and securely.

Dear YouTube,

I am writing to you today to request that you expand the payment options available on your platform. Currently, the only payment options are Visa and Mastercard. This limits the number of people who can easily use your platform to purchase products and services.

I understand that there are costs associated with adding new payment options. However, I believe that the benefits of expanding your payment system would outweigh the costs. For example, expanding your payment system would allow you to reach a wider audience, which would increase your revenue.

I would like to suggest that you consider adding the following payment options to your platform:

PayPal

https://www.tiktok.com/coin?enter_from=web_live_nav

Apple Pay

Google Pay

Amazon Pay

Venmo

Cash App

These are all popular payment options that are used by millions of people around the world. Adding these options to your platform would make it easier for people to purchase products and services on your platform.

I believe that expanding your payment system would be a positive change for your platform. I urge you to consider my request.

Here are some reasons why I believe that expanding your payment system would be beneficial for both YouTube and its users:

Increased revenue: Expanding your payment system would allow you to reach a wider audience, which would increase your revenue. For example, if you added PayPal as a payment option, you would be able to reach the millions of people who use PayPal to make online purchases.

Improved customer satisfaction: Expanding your payment system would improve customer satisfaction. Many people prefer to use payment options that they are familiar with, such as PayPal or Apple Pay. By adding these options to your platform, you would be making it easier for people to do business with you.

Increased competition: Expanding your payment system would make YouTube more competitive with other online platforms. For example, TikTok allows users to purchase coins using a variety of payment options, including PayPal, Apple Pay, and Google Pay. By adding these options to your platform, you would be able to compete with TikTok and other platforms.

I hope that you will consider my request to expand the payment options available on YouTube. I believe that this would be a positive change for both YouTube and its users.

Thank you for your time and consideration.

Sincerely,

Putu Suhartawan

Conclusion:

people who are leaders in their respective organizations and have expertise in the implementation of CBDCs with limited circulation to combat inflationary pressures:

Jerome Powell: Jerome Powell is the Chair of the Federal Reserve in the United States. He has been involved in discussions around the development of a US CBDC and has spoken about the need for a CBDC to address issues such as financial inclusion and payment system efficiency.

Christine Lagarde: Christine Lagarde is the President of the European Central Bank. She has spoken about the potential benefits of a digital euro, including the ability to increase financial inclusion and reduce costs associated with cash handling.

Haruhiko Kuroda: Haruhiko Kuroda is the Governor of the Bank of Japan. He has been involved in discussions around the development of a digital yen and has spoken about the need to carefully consider the impact of a CBDC on the economy and financial system.

Yi Gang: Yi Gang is the Governor of the People's Bank of China. He has overseen the development and pilot testing of China's digital yuan and has spoken about the need to balance innovation and stability in the implementation of a CBDC.

Andrew Bailey: Andrew Bailey is the Governor of the Bank of England. He has spoken about the potential benefits of a digital pound, including the ability to increase competition and reduce transaction costs. He has also emphasized the need to carefully consider the implications of a CBDC for monetary policy and financial stability.

It's worth noting that the leaders of central banks and other organizations involved in the development and implementation of CBDCs may vary depending on the country or region.

In conclusion, this thesis explores how a country can implement a CBDC with limited circulation to combat inflationary pressures while still benefiting from the advantages of financial inclusion and payment system modernization. The proposed framework for designing and implementing a CBDC with controlled circulation provides a balanced approach that can help countries achieve their monetary policy objectives while ensuring financial inclusion and payment system modernization.

References:

Bank for International Settlements. (2020). Central bank digital currencies: foundational principles and core features. BIS Papers, (107).

Bank of Canada. (2021). Central Bank Digital Currency: Opportunities, Challenges and Design. Bank of Canada Staff Discussion Paper, (2021-3).

European Central Bank. (2021). Report on a digital euro. European Central Bank, Frankfurt am Main.

Raskin, M., & Yermack, D. (2016). Digital currencies, decentralized ledgers, and the future of central banking. NBER Working Paper, (22238).

World Bank Group. (2020). The Use of Digital Payments and Central Bank Digital Currencies in Remittances: Opportunities and Challenges. World Bank, Washington, DC.