Vol. 5, No.4, 9-32, December 2021
Corporate liquidity in normal and crisis times: what is the best yardstick?
Authors: André Bastiaan DORSMAN
Vrije Universiteit Amsterdam, The Netherlands
University of Groningen, The Netherlands
Aim: This paper is meant to investigate measures that help to assess corporate liquidity in both normal and crisis periods, to find out what matters on corporate liquidity in crisis times.
Design / research methods: We provide an overview of relevant liquidity measures used by both professionals and academics, apply regular liquidity measures on three major European electricity suppliers, study three local cases to find out how the recent COVID-19 crisis affected liquidity and provide an overview of liquidity management on 27 electricity, oil/gas and other multinational firms.
Conclusions / findings: Liquidity measures concentrate on cash ratios, working capital ratios and in specific the cash conversion cycle (CCC). In crisis times, whereas priorities do change, liquidity measures should not. In the COVID-19 crisis, firms go for leaner operations, as well as financing adjustments when needed.
Originality / value of the article: We plead for keeping a close eye on the CCC in both good and bad times. The article provides various recommendations to academics and practitioners.
Keywords: cash, working capital, cash conversion cycle, crisis, liquidity measures.
JEL: G30, M41.
Vol. 5, No.4, 33-60, December 2021
A new digital currency system
Authors: Kees VAN HEE
Eindhoven University of Technology, Nederland
University of Groningen, Nederland
Aim: The aim of this paper is to describe the construction of a new system for digital currency governed by the central bank, Central Bank Digital Currency (CBDC). Although the system uses cryptography, it is a new alternative for crypto currency like the Bitcoin. Today there is a global discussion about the process of money creation by the commercial banks and the need for CBDC available for a broad public. There is almost no literature how such a system could be constructed. In this paper we fill this gap. The system we describe, uses modern cryptography that guarantees privacy on the one hand but that allows for traceability on the other hand. Also we consider the possibilities for new fintech initiatives and the new role of commercial banks.
Research methods: The research method can be classified as design research since we present a high-level model of the system as a proof-of concept. So it proofs that such a system is feasible in principle. It is expected that the paper contributes to the discussion on CBDC systems.
Conclusions: It is shown that it is indeed possible to design a CBDC system that is far more efficient than the well-known crypto currency systems. But the system uses one distributed system for transaction processing governed by the Central Bank or a trusted third party. This might be seen as a drawback but the system is performing only very elementary transactions that are easy to verify.
Originality: The approach is new. Although existing cryptography techniques are used, the system as such is a completely new alternative for CBDC.
Implications: The paper shows that a CBDC system is relatively easy to construct and so this paper could play a role in the transition to such a system in reality.
Keywords: monetary systems, payment systems, central banks, software
JEL: E51, E58, E59
Vol. 5, No.4, 61-95, December 2021
Design of a rule-based monetary policy in a Central Bank Digital Currency system
Authors: Jacob WIJNGAARD, University of Groningen, Nederland
Kees VAN HEE, Eindhoven University of Technology, Nederland
Aim: This paper presupposes a purely Central Bank Digital Currency (CBDC) based system. Its aim is to describe how such a system facilitates complete new possibilities to design a suitable monetary policy. More specifically, the purpose is to show that the available monetary tools can be used to design a rule-based monetary policy that guarantees stability of purchasing power and interest rates.
Research methods: The paper is design oriented. It describes how the monetary system could function The important monetary variables are defined and their relationship is described. To illustrate these variables and their relationship, simulation results of their behavior are added.
Conclusions: It is shown that it is indeed possible to design a monetary policy that is rule based and guarantees stability of purchasing power and interest rates. Crucial elements in the design are linking the balances of the CBDC-accounts to a proxy of the domestic product and replacing the use of government bonds by allowing the government to borrow from the Central Bank and giving households and businesses the opportunity to open a savings account at the Central Bank.
Originality: The approach is completely new. It is the result of rethinking the possibilities of a complete transition of bank money to CBDC.
Implications: The paper shows that a more absolute transition to the use of CBDC makes it possible to establish a clearer and more stable monetary practice, and that it is necessary therefore to revise monetary theory.
Keywords: Design, CBDC, Rule-based, Monetary policy, Inflation correction, Domestic product proxy
JEL: E42, E43, E52, E58, E63.
Vol. 5, No. 4, 96-115, December 2021
Money growth and social stability
Authors: Erdem BASCI
TED University, Ankara, Turkey
Ankara Yildirim Beyazit University, Turkey
EISTI, Cergy, France
Aim: Both the Keynesian and the Fisherian channels of sovereign money growth have slowed down significantly in the decade following the Global Financial Crisis (GFC). Together with the rise of fintech, privately issued unbacked crypto-assets tried to fill this void. The developments have revived the interest on the Central Bank Digital Currency (CBDC) idea and on developing potential channels for future sovereign money growth. The aim of this paper is to compare the Keynesian and Fisherian channels of sovereign money growth regarding their impact on wealth distribution and inflation.
Design / Research Methods: We use a simple monetary model with heterogeneous agents. In our model, the agents are consumers with different spending propensities but with equal initial wealth levels and with exactly the same non-interest incomes over time.
Conclusions / findings: We show that the Keynesian (uniform) money growth channel has a softening effect on the wealth dispersion and thereby, an upward pressure on money velocity. The model implies that the inclusive nature of current post-Covid19 recovery plans may have a desirable impact on social stability. Yet, these plans may turn out to be more inflationary in comparison the post-GFC policies.
Originality / value of the article: This paper shows that heterogeneity of economic agents should not be ignored by post-GFC policy makers and that how new money is created matters in an essential way under heterogeneity of savings behaviour.
Implications of the research: The implication for policy makers is that the demand deficiency associated with the fall in money velocity and the worsening of wealth dispersion may be softened by a more inclusive money growth regime, potentially with the practical use of CBDCs. Yet, the extra inflationary impact of such a regime needs to be kept in mind.
Key words: Money Velocity, Money Growth, Heterogeneity, CBDC, Wealth Distribution, Sustainable Development Goals, SDG10, Inequalities, Inflation
JEL: D31, E4, E63
Vol. 5, No. 4, 117-143, December 2021
Negative interest rates, COVID-19, and the finances of listed euro firms
Author: Henk VON EIJE
University of Groningen, The Netherlands
Aim: The paper measures the impact of negative interest rates on listed firms in the original euro zone countries. It also measures the impact of the first COVID-19 year.
Design / research methods: The paper uses panel data to measure the influence of the short-term ECB deposit rate and the 10-years German bond yield on short-term and long-term firm variables. Cross section fixed effects are applied to first differences and dummy variables. For liquidity and non-liquid assets the effects are also measured for small and large companies, for sectors, and for countries.
Conclusions / findings: Corporate liquidity ratios and creditor ratios decline when short-term ECB-rates fall. If ECB rates are negative, liquidity ratios are further reduced by 0.6 percentage points. Declining long-term German government bond yields increase non-liquid assets, while negative yields boost these assets by 4.5% extra. In the first COVID-19 year, the investments in non-liquid assets were 7.6% smaller, while liquidity ratios increased by 2.3 percentage points.
Originality / value of the article: Papers on the influence of negative interest rates and of COVID-19 on European firms are unavailable. This makes the paper relevant for firm managers and policy makers and a benchmark for future research.
Implications of the research: Because the issues addressed are new, further research is valuable. One may think of comparable studies for different countries. Many other suggestions for further research are given in the conclusions.
Keywords: Negative interest rates, European Central Bank, German government bond yields, short-term firm financing, liquidity ratios, debtor ratios, creditor ratios, dividends, long-term borrowing cash flows, non-liquid investments, corona crisis, COVID-19.
JEL: E22, E31, E32, E58, G31, G35.