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El Banco Central de Costa Rica (BCCR) interpreta la regulación de las comisiones por el uso de tarjetas de crédito o débito como una justificación para establecer topes máximos, de tal forma que los emisores recuperen únicamente los costos operacionales y estáticos del sistema.

The use of technology to provide financial services (FinTech) represents one of the most fascinating interplays in economic history in the last 150 years. Beginning with the introduction of the telegraph in 1838 and the first transatlantic cable in 1866, technological innovation defined the development of global financial markets throughout the 19^th century. Similarly, Barclay’s introduction of the automatic teller machine in 1967 represents one of the most important financial innovations in the banking sector in the last century and initiated financial players’ shift toward digital infrastructure. Over the last half-century, the global financial industry has become one of the top purchasers of IT products. Regulation has struggled to keep apace.

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Abstract

The New Keynesian literature focuses on rules-based interest rate policies, abstracting from the role of monetary aggregates. In the background, though, the quantity equation must hold — every transaction requires money, with money units used in multiple transactions within a period. What is often overlooked is that imposing a rules-based interest rate policy is equivalent to assuming a particular money velocity specification. Using this alternative specification, we derive the efficient money supply rule and show that determinate equilibria exist with money supply policy and a fixed nominal interest rate. We estimate a New Keynesian model with either conventional interest rate policy or our money market reinterpretation of the model, accounting for the policy rate lower bound (PRLB). The money market estimates exactly match the PRLB duration in the data, whereas the conventional estimates fall short by four years.

Senators Richard Durbin (D-Ill.) and Roger Marshall (R-Kan.) recently introduced the Credit Card Competition Act, which would effectively enable merchants to route credit card transactions over a network other than the main one affiliated with the card. The sponsors say that this will increase “competition” and reduce costs for merchants, who will pass on the savings to consumers.

But are Durbin and Marshall being overly optimistic? Have they perhaps missed some predictable but unintended consequences that might cause their act to harm rather than help consumers?

We hope you will join our esteemed colleagues Julian Morris and Todd Zywicki for a timely discussion of this proposed legislation.

Abstract

The appropriate boundary between public and private regulation has long been of interest to law and economics scholars. Especially relevant for understanding the private regulatory dynamics of the digital currency industry are the ways in which self-regulation has existed in financial markets. These studies suggest that too much market concentration and too much competition both diminish the possibility for self-regulation in the interest of consumers. Similarly, certain exchange roles give rise to permission of market manipulation by sub-classes of actors in a way that make exchange self-regulation less likely. Nonetheless, the unique technical features of blockchain networks, and the way in which consumers and industry participants uniquely value transparency and immutability means the possibility for productive self-regulation to benefit retail consumers may be greater than skeptics make it out to be. Furthermore, industry self-regulation can preempt or substitute for more distortionary or ill-fitting regulation emanating from public authorities. Finally, given the inevitability of public regulation, this suggests that developing digital currency industry complementarities along the lines of those studied in banking and commodities and securities exchanges is likely to shed light on the emergent dynamics of industry self-regulation most likely to benefit consumers.

Abstract

We assess the capacity of the U.S. property-liability insurance industry and the efficiency of the state guaranty fund system in response to large scale loss events to assess the resilience of the current system to the growing challenges of climate change. We identify characteristics of the industry’s capital structure and the guaranty fund system that limit the ability to indemnify policyholders following extreme catastrophic losses. We also consider the sustainability of the system over time under assumptions of increasing loss frequency and severity. We find that some attributes of insurance guarantees present short-term problems for policyholders and create long-term challenges for competitive private insurance markets, particularly when a subset of insurers shoulders the burden for past losses.

Abstract

Academic investigators have used behavioural economics, a method developed originally to study consumers and their sentiments towards products, to study matters of public policy. A recent article in the European Journal of International Law – ‘What Is Wrong with Investment Arbitration? Evidence from a Set of Behavioural Experiments’ – gives a detailed summary of a series of experiments performed in order to study public sentiment towards investment arbitration. The investigators, Maria Laura Marceddu and Pietro Ortolani observe that public sentiment improves towards the outcome of a dispute settlement procedure when survey respondents are told that the procedure was a ‘court’ with tenured judges, and it worsens when they are told that it was ‘arbitration’ with temporary appointees. From their observations, Marceddu and Ortolani conclude that an international investment court, such as that which the European Union promotes, is a good idea. We suggest, however, that a further inquiry should investigate in greater detail public understanding of what qualities the individuals who serve as judges or arbitrators ought to display, as distinct from the institutional format in which dispute settlement takes place.

European Union lawmakers appear close to finalizing a number of legislative proposals that aim to reform the EU’s financial-regulation framework in response to the rise of cryptocurrencies. Prominent within the package are new anti-money laundering and “countering the financing of terrorism” rules (AML/CFT), including an extension of the so-called “travel rule.” The travel rule, which currently applies to wire transfers managed by global banks, would be extended to require crypto-asset service providers to similarly collect and make available details about the originators and beneficiaries of crypto-asset transfers.

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Introduction

Real-time payments (RTP) are an increasingly popular means by which individuals can send credits from one account to another. Many banks have established internal RTP systems and, in some countries, these have been extended to other banks through private consortia such as The Clearing House in the United States. Such consortia enable someone with an account at Chase, for example, to send money to someone with an account at Wells Fargo, and vice versa, using their RTP apps.[1]

In other countries, central banks have inhibited the establishment of private RTP networks and have developed their own systems. One such example is Brazil, where the Banco Central do Brasil (“BCB”) has operated the Pix instant-payment system since 2020.

The Bank for International Settlements (BIS), the Basel-based organization that sets regulatory standards for central banks, recently published a paper examining Pix that was co-authored by two researchers from the BCB and three from the BIS.[2] This brief offers some initial thoughts on that BIS paper and on the Pix system more generally.

We begin with a discussion of the economics of payment networks, with an emphasis on the optimal distribution of costs and benefits. Section II addresses cost transparency and apportionment in payment systems run by central banks. Section III critiques several mistaken notions regarding the role of rewards in payment-card networks. Section IV illustrates the conflicts of interest that can arise when a governmental entity such as a central bank competes with the private sector. Section V discusses the inter-related problems of data breaches, inadequate know-your-customer procedures among some Pix-implementing entities, and the phenomenon of “lightning kidnappings.” Section VI compares the operational rules governing the BCB with international good governance. Section VII concludes with a discussion of the wider lessons for governments considering the implementation of RTP systems.

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[1] RTP Network Participating Financial Institutions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp/rtp-participating-financial-institutions (last visited May 18, 2022).

[2] Angelo Duarte et al., Central Banks, the Monetary System and Public Payment Infrastructures: Lessons from Brazil’s Pix, BIS Bulletin no. 52 (Mar. 23, 2022), at 1.