Pub Date : 2022-04-01DOI: 10.1146/annurev-financial-111620-022516
B. Hirtle, A. Kovner
We provide a critical review of the empirical and theoretical literature on bank supervision. This review focuses on microprudential supervision: the supervision of individual banking institutions aimed at assessing the financial and operational health of those firms. Theory suggests that supervision is required not only to ensure compliance with regulation but also to allow for the use of soft information in mitigating externalities of bank failure. Empirically, more intensive supervision results in reduced risk-taking, but less consensus has been found on whether the risk-reducing impact of supervision comes at the cost of reduced credit supply. Theoretical costs and benefits of supervisory disclosure have been outlined, and this disclosure is informative to investors; however, it is difficult to identify the impact of disclosure distinct from supervisory and regulatory changes. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
{"title":"Bank Supervision","authors":"B. Hirtle, A. Kovner","doi":"10.1146/annurev-financial-111620-022516","DOIUrl":"https://doi.org/10.1146/annurev-financial-111620-022516","url":null,"abstract":"We provide a critical review of the empirical and theoretical literature on bank supervision. This review focuses on microprudential supervision: the supervision of individual banking institutions aimed at assessing the financial and operational health of those firms. Theory suggests that supervision is required not only to ensure compliance with regulation but also to allow for the use of soft information in mitigating externalities of bank failure. Empirically, more intensive supervision results in reduced risk-taking, but less consensus has been found on whether the risk-reducing impact of supervision comes at the cost of reduced credit supply. Theoretical costs and benefits of supervisory disclosure have been outlined, and this disclosure is informative to investors; however, it is difficult to identify the impact of disclosure distinct from supervisory and regulatory changes. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":" ","pages":""},"PeriodicalIF":3.2,"publicationDate":"2022-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43625490","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-03-22DOI: 10.1146/annurev-financial-112921-110812
Tim Willems,Jeromin Zettelmeyer
This article surveys the literature on sovereign debt sustainability from its origins in the mid-1980s to the present and focuses on four debates. First, we evaluate the shift from an accounting-based view of debt sustainability using government borrowing rates to a model-based view that uses stochastic discount rates. Second, we review empirical tests, focusing on the relationship between primary balances and debt. Third, we discuss debt sustainability in the presence of rollover risk. And fourth, we evaluate whether government borrowing costs below rates of growth ( r < g) generate a free lunch, in the sense that debt sustainability does not require future primary surpluses. We argue that liquidity services provided by sovereign debt may indeed lead to a free lunch, albeit one of limited size. The value of such services depends on the credibility of the central bank, which can be accumulated via prudent policies and subsequently drawn on to allow for looser fiscal policy. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
{"title":"Sovereign Debt Sustainability and Central Bank Credibility","authors":"Tim Willems,Jeromin Zettelmeyer","doi":"10.1146/annurev-financial-112921-110812","DOIUrl":"https://doi.org/10.1146/annurev-financial-112921-110812","url":null,"abstract":"This article surveys the literature on sovereign debt sustainability from its origins in the mid-1980s to the present and focuses on four debates. First, we evaluate the shift from an accounting-based view of debt sustainability using government borrowing rates to a model-based view that uses stochastic discount rates. Second, we review empirical tests, focusing on the relationship between primary balances and debt. Third, we discuss debt sustainability in the presence of rollover risk. And fourth, we evaluate whether government borrowing costs below rates of growth ( r < g) generate a free lunch, in the sense that debt sustainability does not require future primary surpluses. We argue that liquidity services provided by sovereign debt may indeed lead to a free lunch, albeit one of limited size. The value of such services depends on the credibility of the central bank, which can be accumulated via prudent policies and subsequently drawn on to allow for looser fiscal policy. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":"4 1","pages":""},"PeriodicalIF":3.2,"publicationDate":"2022-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520473","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-03-22DOI: 10.1146/annurev-financial-111620-011240
Kose John, Maureen O'Hara, Fahad Saleh
We survey extant literature on the economics of blockchain fundamentals, with particular focus on Bitcoin, proof-of-work, and proof-of-stake. We formally clarify Bitcoin's economic significance in solving the double-spending problem without a centralized entity. We then transition to the economics literature, highlighting the key endogenous economic interactions among participants in the Bitcoin ecosystem as well as the economics of proof-of-stake and other potential consensus algorithms. Along the way, we discuss various literature that provides important insights regarding fees, forks, and price volatility. We conclude by reflecting on the next generation of blockchain innovations. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
{"title":"Bitcoin and Beyond","authors":"Kose John, Maureen O'Hara, Fahad Saleh","doi":"10.1146/annurev-financial-111620-011240","DOIUrl":"https://doi.org/10.1146/annurev-financial-111620-011240","url":null,"abstract":"We survey extant literature on the economics of blockchain fundamentals, with particular focus on Bitcoin, proof-of-work, and proof-of-stake. We formally clarify Bitcoin's economic significance in solving the double-spending problem without a centralized entity. We then transition to the economics literature, highlighting the key endogenous economic interactions among participants in the Bitcoin ecosystem as well as the economics of proof-of-stake and other potential consensus algorithms. Along the way, we discuss various literature that provides important insights regarding fees, forks, and price volatility. We conclude by reflecting on the next generation of blockchain innovations. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":"1 1","pages":""},"PeriodicalIF":3.2,"publicationDate":"2022-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41350515","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-01DOI: 10.1146/annurev-financial-100620-065648
Joseph G. Haubrich
Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But when and where, which aspects of the curve matter most, and which economic forces account for the predictive ability are matters of dispute. Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, has addressed the issue. For the United States, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust indicator of recessions in the post–World War II period. The spread also predicts future real GDP growth for the United States, although the forecast ability varies by time period in ways that appear to depend on monetary policy. The evidence is less clear in other countries, but the yield curve shows some predictive ability for the United Kingdom and Germany, among others.
{"title":"Does the Yield Curve Predict Output?","authors":"Joseph G. Haubrich","doi":"10.1146/annurev-financial-100620-065648","DOIUrl":"https://doi.org/10.1146/annurev-financial-100620-065648","url":null,"abstract":"Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But when and where, which aspects of the curve matter most, and which economic forces account for the predictive ability are matters of dispute. Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, has addressed the issue. For the United States, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust indicator of recessions in the post–World War II period. The spread also predicts future real GDP growth for the United States, although the forecast ability varies by time period in ways that appear to depend on monetary policy. The evidence is less clear in other countries, but the yield curve shows some predictive ability for the United Kingdom and Germany, among others.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":"20 8","pages":"341-362"},"PeriodicalIF":3.2,"publicationDate":"2021-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520465","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-01DOI: 10.1146/annurev-fe-13-090321-100001
A. Lo, R. C. Merton
It has been an eventful 12 years since first beginning the privilege of serving as founding editors of the Annual Review of Financial Economics for its inaugural volume in 2009. In the wake of the worst global financial crisis any of us had experienced in our lifetimes, financial economics moved from a mathematically arcane subject known to a relative handful of academics and practitioners into the mainstream of policy debates and political discussion, even to the point of populist fervor. This striking sea change is a result not only of the 2008 Financial Crisis but also of the extraordinary flow of financial innovation that has continued unabated to this day, despite the cautionary soul-searching that followed those fateful events. The unique interplay between the theory and practice of financial economics, combined with technological advances permitting greater democratization of the markets, has led to an unusual state in which passive investing is more popular than ever before—but so are highly volatile assets such as cryptocurrencies, digitally signed works of art, and “meme stocks.” As the financial environment has changed, so has the content of the Annual Review of Financial Economics, although with some lag. The form of the Annual Reviews series is intentionally reflective—“reviews with attitude,” according to Susan T. Fiske, a Co-Editor of the Annual Review of Psychology, and to develop “attitude” toward a given body of literature is necessarily backward-looking. Nevertheless, the Annual Review of Financial Economics, like the Annual Reviews in other fields, has endeavored to inform readers of potential future directions of research through our selection of topics, providing a map of interesting territories for future pathfinders to follow. We have thus been honored to publish retrospectives by such giants of financial economics as Paul Samuelson, Harry Markowitz, and Eugene Fama and articles about the careers of Fischer Black, Stephen Ross, and Robert C. Merton. These articles have the overt mission to reaffirm the study of financial economics as a scientific endeavor with a distinct historical lineage of its own, whose insights are specific to this unique field. In addition, this journal has explored in depth the causes of the 2008 Financial Crisis, as befits its significance, including a special issue on the occasion of its tenth anniversary. The content of these reviews have ranged from the theoretical and geopolitical ramifications of the crisis to discussions of its practical and pragmatic response.One particular goal of this journal has been to provide its readership with information on the less familiar parts of the “infernal machine” that led to the crisis, including credit default swaps, the collateralized debt obligation, the mortgage-backed securities market, the real estate market, and government policies that facilitated and fueled these innovations.
{"title":"A Look Back and a Way Forward","authors":"A. Lo, R. C. Merton","doi":"10.1146/annurev-fe-13-090321-100001","DOIUrl":"https://doi.org/10.1146/annurev-fe-13-090321-100001","url":null,"abstract":"It has been an eventful 12 years since first beginning the privilege of serving as founding editors of the Annual Review of Financial Economics for its inaugural volume in 2009. In the wake of the worst global financial crisis any of us had experienced in our lifetimes, financial economics moved from a mathematically arcane subject known to a relative handful of academics and practitioners into the mainstream of policy debates and political discussion, even to the point of populist fervor. This striking sea change is a result not only of the 2008 Financial Crisis but also of the extraordinary flow of financial innovation that has continued unabated to this day, despite the cautionary soul-searching that followed those fateful events. The unique interplay between the theory and practice of financial economics, combined with technological advances permitting greater democratization of the markets, has led to an unusual state in which passive investing is more popular than ever before—but so are highly volatile assets such as cryptocurrencies, digitally signed works of art, and “meme stocks.” As the financial environment has changed, so has the content of the Annual Review of Financial Economics, although with some lag. The form of the Annual Reviews series is intentionally reflective—“reviews with attitude,” according to Susan T. Fiske, a Co-Editor of the Annual Review of Psychology, and to develop “attitude” toward a given body of literature is necessarily backward-looking. Nevertheless, the Annual Review of Financial Economics, like the Annual Reviews in other fields, has endeavored to inform readers of potential future directions of research through our selection of topics, providing a map of interesting territories for future pathfinders to follow. We have thus been honored to publish retrospectives by such giants of financial economics as Paul Samuelson, Harry Markowitz, and Eugene Fama and articles about the careers of Fischer Black, Stephen Ross, and Robert C. Merton. These articles have the overt mission to reaffirm the study of financial economics as a scientific endeavor with a distinct historical lineage of its own, whose insights are specific to this unique field. In addition, this journal has explored in depth the causes of the 2008 Financial Crisis, as befits its significance, including a special issue on the occasion of its tenth anniversary. The content of these reviews have ranged from the theoretical and geopolitical ramifications of the crisis to discussions of its practical and pragmatic response.One particular goal of this journal has been to provide its readership with information on the less familiar parts of the “infernal machine” that led to the crisis, including credit default swaps, the collateralized debt obligation, the mortgage-backed securities market, the real estate market, and government policies that facilitated and fueled these innovations.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":" ","pages":""},"PeriodicalIF":3.2,"publicationDate":"2021-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49620837","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-01DOI: 10.1146/annurev-financial-010421-085556
Shiqi Chen,Bart M. Lambrecht
We explore whether theoretically the target leverage and pecking-order models can be reconciled with payout smoothing. Investment absorbs a significant part of income and asset volatility if the firm follows both a payout target and a net debt ratio (NDR) target. A positive (negative) NDR amplifies (dampens) shocks in assets. Slow adjustment toward the NDR target facilitates payout smoothing. Under strict pecking-order financing, income shocks are absorbed primarily by changes in net debt. More payout smoothing implies a stronger negative relation between debt and net income. Shocks to assets in place need not affect current payout.
{"title":"Do Capital Structure Models Square with the Dynamics of Payout?","authors":"Shiqi Chen,Bart M. Lambrecht","doi":"10.1146/annurev-financial-010421-085556","DOIUrl":"https://doi.org/10.1146/annurev-financial-010421-085556","url":null,"abstract":"We explore whether theoretically the target leverage and pecking-order models can be reconciled with payout smoothing. Investment absorbs a significant part of income and asset volatility if the firm follows both a payout target and a net debt ratio (NDR) target. A positive (negative) NDR amplifies (dampens) shocks in assets. Slow adjustment toward the NDR target facilitates payout smoothing. Under strict pecking-order financing, income shocks are absorbed primarily by changes in net debt. More payout smoothing implies a stronger negative relation between debt and net income. Shocks to assets in place need not affect current payout.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":"3 2","pages":"271-299"},"PeriodicalIF":3.2,"publicationDate":"2021-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520474","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-01DOI: 10.1146/annurev-financial-040721-075128
Robert A. Jarrow
This article revisits the economics of insurance using insights from derivatives pricing and hedging. Applying this perspective, I emphasize the following insights applicable to insurance. First, I provide a valid justification for the use of arbitrage-free insurance premiums. This justification applies in both complete and incomplete markets. Second, I demonstrate the importance of diversifiable idiosyncratic risk for the determination of insurance premiums. And third, analyzing the insurance industry using the functional approach, I show the importance of derivatives and the synthetic construction of derivatives for reducing an insurance company's insolvency risk.
{"title":"The Economics of Insurance: A Derivatives-Based Approach","authors":"Robert A. Jarrow","doi":"10.1146/annurev-financial-040721-075128","DOIUrl":"https://doi.org/10.1146/annurev-financial-040721-075128","url":null,"abstract":"This article revisits the economics of insurance using insights from derivatives pricing and hedging. Applying this perspective, I emphasize the following insights applicable to insurance. First, I provide a valid justification for the use of arbitrage-free insurance premiums. This justification applies in both complete and incomplete markets. Second, I demonstrate the importance of diversifiable idiosyncratic risk for the determination of insurance premiums. And third, analyzing the insurance industry using the functional approach, I show the importance of derivatives and the synthetic construction of derivatives for reducing an insurance company's insolvency risk.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":"113 1","pages":"79-110"},"PeriodicalIF":3.2,"publicationDate":"2021-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138542409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-01DOI: 10.1146/annurev-financial-010621-115801
William H. Janeway, Ramana Nanda, Matthew Rhodes-Kropf
We review the growing literature on the relationship between venture capital (VC) booms and start-up financing, focusing on three broad areas. First, we discuss the drivers of large inflows into the VC asset class, particularly in recent years, which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of VC financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VC investors choose to fund and the terms at which they are funded, independent of investment opportunities—thereby shaping the trajectory of innovation being conducted by start-ups. Third, an important insight from recent research is that booms in VC financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the United States over the past 40 years in just two broad areas—information and communication technologies and biotechnology. We conclude by highlighting promising areas of further research.
{"title":"Venture Capital Booms and Start-Up Financing","authors":"William H. Janeway, Ramana Nanda, Matthew Rhodes-Kropf","doi":"10.1146/annurev-financial-010621-115801","DOIUrl":"https://doi.org/10.1146/annurev-financial-010621-115801","url":null,"abstract":"We review the growing literature on the relationship between venture capital (VC) booms and start-up financing, focusing on three broad areas. First, we discuss the drivers of large inflows into the VC asset class, particularly in recent years, which are related to but also distinct from macroeconomic business cycles and stock market fluctuations. Second, we review the emerging literature on the real effects of VC financing booms. A particular focus of this work is to highlight the potential impact that booms (and busts) can have on the types of firms that VC investors choose to fund and the terms at which they are funded, independent of investment opportunities—thereby shaping the trajectory of innovation being conducted by start-ups. Third, an important insight from recent research is that booms in VC financing are not just a temporal phenomenon but can also be seen in terms of the concentration of VC investment in certain industries and geographies. We also review the role of government policy, exploring the degree to which it can explain the concentration of VC funding in the United States over the past 40 years in just two broad areas—information and communication technologies and biotechnology. We conclude by highlighting promising areas of further research.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":" ","pages":""},"PeriodicalIF":3.2,"publicationDate":"2021-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49126569","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-01DOI: 10.1146/annurev-financial-110420-090352
William L. Megginson,Diego Lopez,Asif I. Malik
State-owned investors (SOIs), including sovereign wealth funds and public pension funds, have $27 trillion in assets under management in 2020, making these funds the third largest group of asset owners globally. SOIs have become the largest and are among the most important private equity investors, and they are key investors in other alternative asset investments such as real estate, infrastructure, and hedge funds. SOIs are also leaders in promoting environmental, social, and governance policies and corporate social responsibility policies in investee companies. We document the rise of SOIs, assess their current investment policies, and describe how their state ownership both constrains and enhances their investment opportunity sets. We survey the most impactful recent academic research on sovereign wealth funds, public pension funds, and their closest financial analogs, private pension funds. We also introduce a new Governance-Sustainability-Resilience Scoreboard for SOIs and survey research examining their role in promoting good corporate governance.
{"title":"The Rise of State-Owned Investors: Sovereign Wealth Funds and Public Pension Funds","authors":"William L. Megginson,Diego Lopez,Asif I. Malik","doi":"10.1146/annurev-financial-110420-090352","DOIUrl":"https://doi.org/10.1146/annurev-financial-110420-090352","url":null,"abstract":"State-owned investors (SOIs), including sovereign wealth funds and public pension funds, have $27 trillion in assets under management in 2020, making these funds the third largest group of asset owners globally. SOIs have become the largest and are among the most important private equity investors, and they are key investors in other alternative asset investments such as real estate, infrastructure, and hedge funds. SOIs are also leaders in promoting environmental, social, and governance policies and corporate social responsibility policies in investee companies. We document the rise of SOIs, assess their current investment policies, and describe how their state ownership both constrains and enhances their investment opportunity sets. We survey the most impactful recent academic research on sovereign wealth funds, public pension funds, and their closest financial analogs, private pension funds. We also introduce a new Governance-Sustainability-Resilience Scoreboard for SOIs and survey research examining their role in promoting good corporate governance.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":"24 10","pages":"247-270"},"PeriodicalIF":3.2,"publicationDate":"2021-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520466","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-11-01DOI: 10.1146/annurev-financial-101620-063859
Tobias Adrian,Tommaso Mancini-Griffoli
Payment systems around the world are evolving with the emergence of digital money issued by private firms and central banks. We provide a conceptual framework to compare and contrast traditional forms of money with their new digital equivalents. We suggest that some forms of digital money, while less stable as a store of value, could be rapidly adopted given their advantages as a means of payment. We review the benefits and risks that would emerge. One approach to managing risks would be to require full backing of selected digital money with central bank reserves. We call the arrangement synthetic central bank digital currency (sCBDC), a private-public partnership that combines the advantages of private sector innovation and customer orientation with the safety and stability of central bank–backed money. We offer policy considerations, directions for research, and an overview of the literature to date. The analysis of digital currencies is an exciting new field crossing into monetary and financial economics that will reshape the monetary and financial systems for many years to come.
{"title":"The Rise of Digital Money","authors":"Tobias Adrian,Tommaso Mancini-Griffoli","doi":"10.1146/annurev-financial-101620-063859","DOIUrl":"https://doi.org/10.1146/annurev-financial-101620-063859","url":null,"abstract":"Payment systems around the world are evolving with the emergence of digital money issued by private firms and central banks. We provide a conceptual framework to compare and contrast traditional forms of money with their new digital equivalents. We suggest that some forms of digital money, while less stable as a store of value, could be rapidly adopted given their advantages as a means of payment. We review the benefits and risks that would emerge. One approach to managing risks would be to require full backing of selected digital money with central bank reserves. We call the arrangement synthetic central bank digital currency (sCBDC), a private-public partnership that combines the advantages of private sector innovation and customer orientation with the safety and stability of central bank–backed money. We offer policy considerations, directions for research, and an overview of the literature to date. The analysis of digital currencies is an exciting new field crossing into monetary and financial economics that will reshape the monetary and financial systems for many years to come.","PeriodicalId":47162,"journal":{"name":"Annual Review of Financial Economics","volume":"41 1","pages":"57-77"},"PeriodicalIF":3.2,"publicationDate":"2021-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138520463","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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