Digital currencies reshape global monetary systems and policy
The ongoing digitalization of money is fundamentally transforming traditional monetary exchange, leading to new forms of currency competition and potential upheaval in the international monetary system. Central bank digital currencies are emerging as a key response to maintain the relevance of public money.
Digital money's dual transformation
The digital revolution is unbundling money's traditional roles, fostering fiercer competition among specialized currencies.
Conversely, large platform ecosystems are rebundling money with data services, encouraging differentiation but hindering interoperability.
This could lead to digital dollarization in socially or digitally integrated countries and the emergence of digital currency areas transcending national borders.
Central bank digital currencies (CBDC) are crucial for public money to remain a relevant unit of account in this evolving landscape.
The paper highlights how new currencies, like stable coins (e.g., Libra), and fiat cryptocurrencies (e.g., Bitcoin), are redefining payments and user data interaction.
Monetary systems: Anchors and new forms
Traditional monetary systems are built around an anchor, such as a commodity or fiat currency, ensuring uniformity through convertibility or backing.
Digital currencies challenge these foundations.
The paper distinguishes between inside money (claims on private entities like bank deposits) and outside money (not a claim, like fiat currencies or cryptocurrencies).
Money also takes account-based forms (payer identity verified, e.g., bank deposits) and token forms (item authenticity verified, e.g., cash, modern e-money, cryptocurrencies).
This distinction is crucial as token money is typically unrelated to credit provision, unlike account-based money.
A timely re-evaluation of money
This paper offers a crucial framework for understanding digital money's profound implications, moving beyond superficial discussions.
Its analysis of unbundling and new currency areas provides critical insights for policymakers grappling with monetary sovereignty.
The distinctions drawn between money types are highly relevant for future central bank strategies.