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Money, Payments and Banking

"CBDC Unbundling": separating Money from Payments and Loans services is essential for the full liberalization of these activities, "
Dan awrey

The introduction of public safe money (CBDC) opens the possibility of solve problems like the financial instability of the current system due to the fragility of the money we use today - bank deposits - and also allows implement a direct monetary policy different from the one that has been used so far, focused on the manipulation of interest rates that, in addition to being ineffective, has negative consequences for the allocation of resources as well as regressive effects on the distribution of wealth.

but there another very interesting consequence why most central banks are considering the introduction of the CBDC, and is the possibility of introduce full competition in banking activities, fundamentally in the services of payments and loans to families and small and medium enterprises.

As I explain in my book Goodbye to the Banks CBDC opens the opportunity to do a structural reform of banking activities, similar to what we have experienced since the end of the last century in other regulated sectors such as telecommunications or air transport.

Structural reforms of regulated sectors they have two essential elements. On one hand, the removal of privileges and protections to certain companies to achieve a balanced playing field, without relative disadvantages for those who want to enter to provide services until now reserved for protected companies. But there is another essential element and that is the separation of activities that are usually united in the current monopoly or oligopoly system.

In competition law, which, like so many other things, is discussed predominantly in English, the word most used to talk about the separation of activities is that of “Unbundling.” That is why I find the publication of Dan's document extremely interesting. Awrey which has been published last week with the title of "Unbundling Banking, Money, and Payments"

Their Parts I, II, and III are an excellent summary of the rationale behind the idea of ​​separating banking.  In its part IV, it raises a highly debatable solution to solve the problem that inevitably arises when considering the introduction of safe money and competition in payments: What do we do with the banks?

At the moment, it seems more reasonable give banks time to transform themselves in order to operate in the free market without the need for the privileges, protections and crutches of the State they have now. And in this sense, the idea that those who are working on the digital euro have been suggesting, of limiting the impact that the introduction of the CBDC may have on banks, is reasonable. This does not mean that later on it is not necessary to design some transition formula so that the structural reform of the banking system, that is, the full liberalization of its activities, is done in an orderly manner and not with the chaos that a totally spontaneous transition might cause.

Dan awrey he is one of a series of lawyers at Cornell Law School who have written very interesting papers on money reform. Earlier this month I had the honor of participating with Saule Omarova in a panel organized by the Frankfurt School. Another Cornell Law School jurist who has written extensively on these topics is Robert C Hockett. And in the blog I have already commented on the works of other jurists Morgan ricks, from the Vanderbilt Law school or Adam Levitin from the Georgetown University Law Center.

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About the Author

Miguel A. Fernandez Ordonez

Miguel A. Fernandez Ordonez

State economist. Former Governor of the Bank of Spain and member of the Governing Council of the European Central Bank (ECB). He currently teaches Seminars on Monetary Policy and Financial Regulation at IEUniversity.

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