Digital money and cash decline pose new challenges to money uniformity
The Swiss National Bank explores how new forms of private digital money and declining cash usage challenge the uniformity of money. This economic note draws lessons from historical examples and discusses potential policy measures for authorities.
Digital money and cash usage test uniformity
The concept of money uniformity faces renewed attention due to the rise of private digital money like stablecoins.
Failures of stablecoins to maintain one-to-one convertibility highlight challenges such as a lack of trust in issuers' creditworthiness and the adequacy of reserves.
Lightly regulated issuers are particularly susceptible.
Furthermore, closed-loop networks and programmability, which can include expiry dates, limit interoperability and convertibility, potentially leading to a fragmented monetary system where money is accepted at a discount.
Concurrently, the decline in cash usage for transactions, a trend observed across many economies, poses another challenge.
While central banks remain committed to providing cash, a continued downward trend could eventually undermine the convertibility of private money into public money, impacting uniformity.
Historical blueprints for monetary stability
Monetary history offers valuable insights into maintaining uniformity, particularly from eras of free banking.
The mid-19th century Suffolk Bank system in New England achieved uniformity by acting as a clearinghouse for banknotes, requiring non-interest-bearing deposits, and performing a lender-of-last-resort role.
This ensured banknotes circulated at par.
Similarly, Switzerland's experience with private banknotes after 1850 saw wide variations in discount rates, indicating a lack of uniformity.
The 1881 Swiss Federal Banknote Act addressed this by regulating note-issuing banks, establishing common reporting standards, and mandating acceptance at par, significantly reducing discount rate dispersion and fostering uniformity.
Beyond cash: A digital uniformity imperative
The document highlights that uniformity, often assumed, faces genuine threats from evolving payment landscapes.
While historical examples offer valuable blueprints, they also underscore that retail public money alone is insufficient.
Policymakers must proactively balance innovation with robust regulatory frameworks to ensure trust and convertibility in a fragmented digital future.