Jonathan Chiu is a Senior Research Advisor in the Funds Management and Banking Department (FBD). His main research interests concern monetary theory, banking, payments and financial infrastructures. He also teaches monetary theory at Queen’s University. Jonathan received his PhD in economics from the University of Western Ontario.
Staff Discussion Papers
The payments landscape in Canada is rapidly changing and will continue to evolve, fuelled by strong and persistent drivers. In Canada, the Canadian Payments Association (CPA) is on a path to modernize Canada’s core payment systems.
Staff Working Papers
Since the creation of Bitcoin in 2009, over 2,000 cryptocurrencies have been issued. We evaluate how well a cryptocurrency functions as a payment system.
Many central banks are considering whether to issue a new form of electronic money that would be accessible to the public. This new form is usually called a central bank digital currency (CBDC). Issuing a CBDC would have implications for the financial system and, more broadly, the wider economy.
Can securities be settled on a blockchain and, if so, what are the gains relative to existing settlement systems? We consider a blockchain that ensures delivery versus payment by linking transfers of assets with payments and operates using a proof-of-work protocol. The main benefit of a blockchain is faster and more flexible settlement, whereas the challenge is to avoid settlement fails when participants fork the chain to get rid of trading losses.
A blockchain is a digital ledger that keeps track of a record of ownership without the need for a designated party to update and enforce changes to the record. The updating of the ledger is done directly by the users of the blockchain and is traditionally governed by a proof-of-work (PoW) protocol.
In the interbank market, banks will sometimes trade below the central bank's deposit rate. We explain this anomaly using a theory based on market frictions and relationship lending.
Recent years have witnessed the advances of e-money systems such as Bitcoin, PayPal and various forms of stored-value cards. This paper adopts a mechanism design approach to identify some essential features of different payment systems that implement and improve the constrained optimal resource allocation.
What makes e-money more special than cash? Is the introduction of e-money necessarily welfare enhancing? Is an e-money system necessarily stable? What is the optimal way to design an efficient and stable e-money scheme?
This paper studies the welfare effects of different credit arrangements and how these effects depend on the trading mechanism and inflation. In a competitive market, a deviation from the Friedman rule is always sub-optimal. Moreover, credit arrangements can be welfare-reducing, because increased consumption by credit users will drive up the price level so that money users have to reduce consumption when facing a binding liquidity restraint.
We study the trading dynamics in an asset market where the quality of assets is private information of the owner and finding a counterparty takes time. When trading of a financial asset ceases in equilibrium as a response to an adverse shock to asset quality, a large player can resurrect the market by buying up lemons which involves assuming financial losses.
The generation and implementation of ideas, or knowledge, is crucial for economic performance. We study this process in a model of endogenous growth with frictions.
Bank of Canada Review Article
November 17, 2011
Central banks play a pivotal role in well-functioning payments systems by providing liquidity via collateralized lending. This article discusses the role of collateral and haircut policy in central bank lending, as well as the distinguishing features of the central bank’s policy relative to private sector practices. It presents a model that explicitly incorporates the unique role of central banks in the payments system and argues that central banks must consider how their haircut policies affect the relative price and liquidity of assets, the market’s asset allocation, and the likelihood of participants to default. Furthermore, under extraordinary circumstances, there is a rationale for the central bank to temporarily reduce haircuts or broaden the list of eligible collateral to mitigate the shortage of liquidity in the market.
Financial System Review Article
- “Relationships in the Interbank Market”
(with Jens Eisenschmidt and Cyril Monnet) in Review of Economic Dynamics, Forthcoming.
- “Blockchain-based Settlement for Asset Trading”
(with Thorsten Koeppl) in Review of Financial Studies, Volume 32(5), p. 1716-1753, May 2019.
- “On the Welfare Effects of Credit Arrangements”
(with Mei Dong and Enchuan Shao) in International Economic Review, Volume 59.3 p. 1621-1651 August 2018.
- “Innovation and Growth with Financial, and other, Frictions”
(with Césaire Meh and Randall Wright) in International Economic Review, 58, p. 95-125, February 1 2017
- “Trading Dynamics with Adverse Selection and Search: Market Freeze, Intervention and Recovery”
(with Thorsten Koeppl) in Review of Economic Studies, Volume 83, Issue 3, p. 969-1000, July 2016.
- “Endogenously Segmented Asset Market in an Inventory Theoretic Model of Money Demand” in Macroeconomic Dynamics, Volume 18, p 438-472, March 2014.
- “A Model of Tiered Settlement”
(with James Chapman and Miguel Molico) in Journal of Money, Credit and Banking, Volume 45, Issue 2-3, pages 327–347, March-April 2013.
- “Central Bank Haircut Policy”
(with James Chapman and Miguel Molico) in Annals of Finance, Volume 7(3), p. 319-348, August 2011.
- “Financial Intermediation, Liquidity and Inflation”
(with Césaire Meh) in Macroeconomic Dynamics, Volume 15, p. 83-118, April 2011.
- “Uncertainty, Welfare and Inflation”
(with Miguel Molico) in Journal of Money, Credit, and Banking, Volume 43, p. 487-512, October 2011.
- “Liquidity, Redistribution, and the Welfare Cost of Inflation”
(with Miguel Molico) in Journal of Monetary Economics, Volume 57(4), p. 428-438, May 2010.