Summary of slides presented by Stephen Morris (Princeton University) and Hyun Song Shin (Bank for International Settlements) at the Conference on Cryptocurrencies and Blockchains, University of Chicago Becker Friedman Institute, 9 November 2018
Distributed ledger technology (DLT) in payment systems
- Permissioned versus permissionless blockchain
- Private versus public blockchain
- Hierarchical versus non-hierarchical blockchain
- The cost of credit rules out good outcome in all but the most favourable states of the world, when constituents of payment system hold plentiful cash balances
- Cash-in-advance experiments with large central bank token balances are more likely to yield good outcomes
- More stringent test is when payment system participants have to rely on credit from outside to fund their payment activity
Two issues for DLT payment systems:
1. How to overcome technological challenges in DLT for payment systems?
2. How to overcome need for credit to finance payments in large value payment systems?
Early discussion and attention has been focused on the first issue. However, the second issue is likely to prove more challenging for free-standing DLT systems that are less reliant on central bank balance sheets. This is so especially in the cross-border and cross-currency context.