Journal of Financial Market Infrastructures

Jorge Cruz Lopez
Western University

Anneke Kosse
Bank for International Settlements

This first (winter) issue of Volume 12 of The Journal of Financial Market Infrastructures offers three papers and underscores the journal’s transition to embrace the role of new technologies, including digital money, and the changes in global payments systems, etc.

This issue includes two analytical papers (refereed via the standard review process by at least two independent referees) and one Forum paper (primarily reviewed by the editorial team) as a thought piece to encourage analytical research.

“Retail payment technology and money demand: evidence from China”, our first analytical paper, is by Chun-Yu Ho, Rongzi Shan and Li Xu, who examine the impact of retail payment technology on money demand in China using data from 1999 to 2020. Their novel data set using data from point-of-sale machines allows them to build on seminal works on money demand functions. Ho et al measure payment card penetration in retail transactions and show that while this increased over their sample period, higher payment card penetration reduces money demand. Their additional comparative study assessed the welfare cost of inflation by employing a consumer surplus approach.

In the issue’s second research paper, “Central clearing and trade cancellation: the case of London Metal Exchange nickel contracts on March 8, 2022”, John W. Heilbron, of the US Department of the Treasury’s Office of Financial Research, explores the 2022 nickel price event on the London Metal Exchange, documenting the market stress and examining the London Metal Exchange’s response to this stress as well as the high court’s verdict. He shows how, in upholding the London Metal Exchange’s right to void contracts, the verdict could change how central counterparty (CCP) rule books are applied under financial distress, potentially creating scope for moral hazard or other adverse consequences.

Finally, central banks are actively exploring central bank digital currencies (CBDCs) by conducting research, proofs of concept and pilots. However, the adoption of a retail CBDC can risk fragmenting both payments markets and retail deposits if the retail CBDC and commercial bank money do not have common operational characteristics. This issue’s Forum paper, “Functional consistency across retail central bank digital currency and commercial bank money” by Lee Braine, Shreepad Shukla and Piyush Agrawa from Barclays, focuses on the “digital pound” – a potential UK retail CBDC – and the Bank of England’s “platform model” to investigate design options to ensure that retail CBDCs and commercial bank money offer functional consistency (the principle that different forms of money have the same operational characteristics). They conclude that no single design option can provide functional consistency across digital pounds and commercial bank money and, instead, a complete solution would need to combine the suitable design option(s) for each key capability.

Well over a decade after its first issue was published, The Journal of Financial Market Infrastructures continues to provide its readership with a selection of cutting-edge papers, novel ideas and analytics that underpin research, particularly in the areas of

• distributed ledger technologies, machine learning and artificial intelligence, and their impact on financial market infrastructures;
• payment, settlement and clearing systems;
• digital money (both private and public) and its impact on central bank operations and central bank balance sheets;
• tokenized deposits and stablecoins; and
• nonbank payment service providers and access to central bank payment rails.

We encourage regular submissions and we note that opportunities are available for selected papers to be presented at conferences or seminars for the dissemination of key messages. Papers that appeared in the previous four issues have, for example, been presented at a joint seminar by the Bank for International Settlements Innovation Hub Hong Kong Centre and The Journal of Financial Market Infrastructures, and at the International Monetary Fund.

We very much hope you will enjoy reading the papers in this issue, and we welcome suggestions for topics that would be of particular interest to our readers as the landscape of financial market infrastructures continues to change rapidly.