The digitalization of money

8th BBVA CIB Seminar

José Manuel González-Páramo

Member of the Board of Directors and Head of Global Economics & Public Affairs, BBVA

20th of June 2019

 BBVA CIB Seminar 1

About the history of money

Paper Paper Electronic Paper Electronic

Currency Currency money Currency money

Digital
Coins Coins Coins Coins Currency

Arrival of Marco The electronic Together with

The born of the
coins with official Polo to Asia in credit and debit Bitcoin, there are
character cards make their more than two
the thirteenth thousand digital
century... appearance coins in circulation

680-560 BC S. XIII S. XX 1971 S. XXI

During the Neolithic: Poor Appears in China in the9th
barter efficiency... Century but in Europe 1.300
years later... US abandoned the

B
gold standard
 BBVA CIB Seminar 2

Money and cash: characteristics of and functions

Three features of cash: Three basic functions ...

1 a medium of exchange

2 a unit of account

Zero
3 a store of value

Yield
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Development of digital currencies

Hyperconnectivity Computing Reduction of Cryptography

capacity costs

1 2 3 4
• Economies of scale and • Decentralization of • Noticeable drop in the • Cryptography provide
network are reinforced storage and verification costs of communications protection and security
exponentially processes and computers

• Rapid information flows • Very intensive use of • Moore´s law: 50% cost • Trust is deposited in
at low cost and subject encryption and digital reduction every two the cryptographic
to security standards signature cryptographic years methods
algorithms
 BBVA CIB Seminar 4

Cryptocurrencies: main weaknesses

Volatility

Anonymity

Operational risks

Electrical energy
Source: Own elaboration based on data from Bolsamania. Date from: 01/01/16 to 13/06/19 consumption

Stablecoins: a potential alternative to cryptocurrencies
Main characteristics
Fiat backed
Reduce the volatility
Key to succeed: fiat assets stored in
a secure and transparent manner
BBVA CIB Seminar 5
“J.P. Morgan Creates Digital Coin
for Payments”
(J.P Morgan February 14, 2019) It is a digital coin
representing United States Dollars held in designated
accounts at JPMorgan Chase N.A. In short, a JPM Coin
always has a value equivalent to one U.S. dollar.
https://www.jpmorgan.com/global/news/digital-coin-payments
“Coming in 2020: Calibra”
A New Digital Wallet for a New
Digital Currency
(Facebook June 18, 2019) Calibra is a newly formed
Facebook subsidiary whose goal is to provide financial
services. The first product Calibra will introduce is a digital
wallet for Libra, a new global currency powered by
blockchain technology.
https://newsroom.fb.com/news/2019/06/coming-in-2020-calibra/
 BBVA CIB Seminar 6

Issuance of digital currencies by central banks

Universal Access Anonymity Zero Yield

CBDC to improve
1 interbank settlement

CBDC similar to
2 cash

CBDC as
3 new policy tool

CBDC as
4 public deposit

6
 Central Bank Digital Currency

Expected outcomes of four CBDC schemes

Interbank Payment New policy CB

settlement system tool Deposit

1 2 3 4
Improved Improved efficiency Getting rid of the Financial stability
efficiency zero lower bound and lower informality
Risk on CB
Lowering Infrastructure Cash is either Credit might be
management banned or extremely reduced
costs Risk to increase abandoned
informality Questionable role
Financial
Increasing for CB if they
repression
competition Impact on redirect funds to the
international flows Legitimacy issues financial system 7
Conclusions

Money is today subjected to an intense

process of digital disruption, after twenty-five
centuries of hegemony of cash

Bitcoin is the most important digital currency

but different alternatives have been
developed from the private sphere,
stablecoins, or from the public sphere, still in
a conceptual territory, such as CBDC

This continuous process of innovation seeks

to materialize the advantages of digitization -
rapidity, globalization, decentralization, cost
reduction, security, etc.
The digitalization of money
8th BBVA Seminar

José Manuel González-Páramo

Member of the Board of Directors and Head of Global Economics & Public Affairs, BBVA

20th of June 2019