Tag Archives: Bank for International Settlements

BIS Stablecoin Report

The BIS has published a report on stablecoins. On Alphaville Izabella Kaminska approves but argues that the report does not contain novel points. One aspect discussed in the report concerns the benefit of stablecoins for cross-border payments; it may be limited unless technology is able to address the key friction:

A major obstacle to the interlinking of domestic payment systems and/or the development of shared global payment platforms is differing legal frameworks across jurisdictions and the associated uncertainty about the enforceability of contractual obligations resulting from participation in interlinked or shared payment platforms operating across borders.

See the VoxEU series on the topic.

BIS Innovation Hub Centre in Switzerland

From the SNB’s press release regarding the newly established BIS Innovation Hub Centre in Switzerland:

The Swiss Centre will initially conduct research on two projects. The first of these will examine the integration of digital central bank money into a distributed ledger technology infrastructure. This new form of digital central bank money would be aimed at facilitating the settlement of tokenised assets between financial institutions. Tokens are digital assets that can be transferred from one party to another. The project will be carried out as part of a collaboration between the SNB and the SIX Group in the form of a proof of concept.

The second project will address the rise in requirements placed on central banks to be able to effectively track and monitor fast-paced electronic markets. These requirements are arising in particular from the greater automation and fragmentation of the financial markets, but also from the increased use of new technologies.

Thomas Jordan and Agustín Carstens signed the Operational Agreement on the BIS Innovation Hub Centre in Switzerland yesterday.

Costs and Benefits of Unconventional Monetary Policy

The BIS has issued two reports that assess the implications of unconventional monetary policies.

The report prepared by the Committee on the Global Financial System discusses

… a number of unconventional monetary policy tools (UMPTs). After a decade of experience with UMPTs the report takes stock of central banks’ experience and draws some lessons for the future.

The report focuses on four sets of tools: negative interest rate policies, new central bank lending operations, asset purchase programmes, and forward guidance. It offers a summary of central banks’ shared understanding of the efficacy of these tools across countries, as well as the way that they were sequenced and coordinated.

The report concludes that, on balance, UMPTs helped the central banks that used them address the circumstances presented by the crisis and the ensuing economic downturn. It identifies side effects, such as dis-incentives to private sector deleveraging and spillovers to other countries, but does not consider them sufficiently strong to reverse the benefits of UMPTs.

The report also discusses whether, and under what circumstances, these tools could be useful in the future. Central banks report that the tools have earned a place in the monetary policy toolbox, but they also highlight that their use should be accompanied by measures that mitigate their potential side-effects. They also highlight that under the circumstances when the tools can be helpful, they need to be used in decisively but in a context that includes a wider set of policies as to avoid overburdening the central bank.

The report prepared by a Markets Committee study group argues that

… some balance sheet-expanding policies were specifically aimed at improving market functioning, and that they delivered on this front. The potential for adverse side effects arose most clearly at a later stage, when asset purchase programmes were introduced to provide monetary stimulus at the effective lower bound for interest rates. But side effects rarely tightened financial conditions in markets to a point that would have undermined policy effectiveness.

That said, the report finds that some market malfunctioning did arise. In bond markets, adverse effects were mostly associated with asset scarcity, but any such effects were often temporary, in part due to mitigating policies. In money markets, market functioning issues (for example in interbank reserve trading) arose from the abundance of reserves. Yet, other wholesale money markets remained robust and central banks retained sufficient control over short-term rates, typically by introducing new tools. The report acknowledges that prolonged use of large balance sheet policies may have longer-term adverse effects on the market ecosystem, but these are hard to measure at this point.

Tax Evasion and Tax Rates

High rates of tax evasion are not necessarily a consequence of high tax rates. In an NBER working paper, Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman provide estimates of countries’ wealth holdings in “tax havens.” Based on BIS statistics the authors find that:

  • Wealth on the order of 10% of global GDP is held offshore.
  • In Scandinavia, the number is much smaller.
  • In continental Europe, it equals roughly 15%.
  • In some Gulf and Latin American countries, almost 60%.
  • In Russia, the richest citizens hold the majority of their wealth abroad.

BIS Research Review

In an Independent Review of BIS Research, Franklin Allen, Charles Bean and José De Gregorio conclude that

… BIS research clearly ‘punches above its weight’ compared to its central bank peers. Finally, the relative performance of the BIS has clearly improved over the past five years, a tribute to the influence of the previous (Steve Cecchetti) and current (Claudio Borio and Hyun Shin) leadership …

They recommend, among other points:

The research programme should have a more clearly defined long-term focus, be less driven
by short-term needs, and seek to be more holistic in approach.

The internal culture should be more open to challenge and research should avoid focussing
on generating results to support the ‘house view’.