Page 68 - The Economist USA

UPLOADED BY "What's News" vk.com/wsnws TELEGRAM: t.me/whatsnws
68 Finance & economics
2 tions reached 347trn yuan ($49trn), acc-
ounting for four of every five payments. An
official digital currency could help address
a risk from this transition. Were mobile-
payment systems to fail or a crisis to erupt, na’s version will be a centralised currency, could apply to digital cash itself.
people might want cash. But there is less
and less of it in circulation. Enter the cbdc: able to track all digital cash in circulation, Given the risks inherent to such a transfor-
people could move into “official” digital
money in central-bank-authorised mobile
wallets. They would also be able to transfer
cash even when offline—for instance, via
Bluetooth. A screenshot of one mobile wal-
let in testing recently spread online. It
looked sufficiently reassuring, showing an
Buttonwood Hard money
Why the euro always survives until tomorrow
n the weeks following the bankruptcy
Iof Lehman Brothers in 2008, there was
naturally concern about the security of
deposits. Many judged cash was safer
kept in hand than parked with a wobbly
bank. Demand for banknotes surged.
Discerning German hoarders were said to
be stuffing their mattresses with euros
with serial numbers prefixed by an “x”,
indicating they were printed in Germany.
Numbers starting with a “y” (Greece) or
an “s” (Italy) were shunned.
This made little sense. A euro bank-
note is a euro banknote, wherever it is
printed. But in troubled times people
look to strong states for security. “Eu-
rope” doesn’t cut it. Tellingly, in the
present crisis, sovereign preroga-
tives—to close borders; to backstop
businesses; to spend freely—have been
asserted, regardless of the European
Union’s rules. This has left Europe look-
ing weak. Whenever that happens, a bout
of anxiety about the euro can’t be far off.
A widely held view is that a common
currency cannot survive without a com-
mon budget. But the burden-sharing that
would strengthen the euro always seems
too big a step. Low-debt countries, nota-
bly Germany, do not fully trust high-debt
ones, such as Italy, to play fair. Euro-
sceptics believe the lack of a fiscal centre interest rates, cash and bonds are indis-
will tear the currency zone apart. This
downplays the pull of a monetary union.
It has been sufficient in Europe to ensure
that enough fiscal union follows—hesi-
tantly, grudgingly, murkily—in its train.
The euro is a lot more durable than it
sometimes looks.
History says that political union is the alisation: a shared liability (cash) has been That is what makes the argument so
essential glue of any currency union.
This invariably entails a centralised
system of taxation and public spending.
It offers a way to deal with economic
disruptions that have an uneven effect
image of a one-yuan note stamped with a
central-bank serial number.
But the bigger prize for China is the new would no longer be an alternative to bank
powers that would come with a cbdc. Chi-
rather like the anti-bitcoin. Officials will be
making it much harder to launder money
or evade taxes. The central bank could also
use coding to control how the money is
used. For example, if it issues cbdc to a
commercial bank for lending on to small
businesses, it could ensure that the money
is activated only once transferred to a small ing—both illegal and antiviral. 7
across the currency zone. A shared fiscal
policy automatically directs support to
where the economic hurt is greatest. The
coronavirus is one such “asymmetric
shock”. It hit Italy and Spain first, and
hardest, within Europe. A country with its
own money could in principle absorb such
shocks through a weaker currency or with
a monetary policy tailored to its needs.
This is not possible in a currency union.
The picture becomes fuzzier in today’s
setting. A bond is a government liability;
but so is money. In a world of near-zero
tinct. As central banks print money to buy
ever more bonds the lines between fiscal
and monetary policy become increasingly
blurred. This is true even in the euro zone, take place within a country’s borders. In
which has tried hard to keep the lines
clear. Quantitative easing by the European
Central Bank (ecb) is, in effect, mutu-
swapped for the sovereign bonds of indi-
vidual euro-zone countries. The ecb is a
collective endeavour. An explicit fiscal
union of some kind would of course be
helpful. But some implicit burden-sharing
The Economist April 25th 2020
firm. And China might find it easier to
make nominal interest rates negative: cash
deposits because negative interest rates
These powers are still some way off.
mation, China will phase in the cbdc very
gradually. Citic Securities estimates that it
will take several years for the digital yuan
to replace just about 10% of all physical
cash in China. For now central banks must
continue to worry about money-launder-
already takes place.
None of this makes the euro zone a
powerhouse. Its bourses are laden with
the stocks of seemingly doomed in-
dustries, such as carmaking and bank-
ing. But the euro itself is not obviously
doomed. Indeed it is not too fanciful to
imagine a future in which it survives
even if the eu loses its sway.
The commitments of a shared curren-
cy are not easily shaken off. The com-
plexity of the financial super-structure
built upon the euro makes break-up a
terrifying prospect. And the ecb, the
institution at the heart of the euro, has
muscle. It can swiftly bring to bear
powerful tools in a crisis. The eu, by
contrast, is a rule-setter. The exigencies
of the present crisis led to the suspen-
sion of many of its strictures: on the free
movement of labour; on state aid to
industry, and spending limits. But peo-
ple have not stopped using the euro. Its
reach is a lot harder to reverse.
The sight of politicians squabbling
over who should bear the budgetary cost
of coronavirus is not a great advertise-
ment for Europe. But for once the euro
zone is ahead of the game. Who bears the
fiscal burden incurred by the recession is
a question that all economies must
answer eventually. Some combination of
taxpayers, consumers and bondholders
will have to foot the bill in the end.
In most places, this reckoning will
the euro zone, by contrast, the burden-
sharing would ideally be across borders.
Some countries will lose; others will win.
bitter. For all the bickering, the euro zone
has become good at lasting another day.
It never quite does enough to resolve all
its contradictions. But they have never
quite proved fatal.