Working Paper: NBER ID: w25426
Authors: Barry Eichengreen
Abstract: Over time, there has been a tendency for political jurisdictions and residents to converge on a single currency. Monopoly over seigniorage is a source of political power and a valuable lifeline when sovereignty is threatened. Moreover a uniform currency, insofar as it is free of counterparty and liquidity risk, facilitates economic activity. But will digital currencies now reverse this trend toward uniformity, given the apparent ease with which they can be created? The information sensitivity of those units, evident in the fact that they trade at varying prices, suggests that they do not yet provide the core functions of money. So-called stable coins are intended to bridge this gap, but whether they can be successfully scaled up and maintain their stability is doubtful. The one unit that can clearly meet these challenges is central bank digital currency. But there would be both costs and benefits of moving in this direction.
Keywords: digital currencies; central bank digital currency; stable coins; monetary policy; history of money
JEL Codes: E4; E40; F0; N0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| centralization of currency issuance (E42) | political power of states (H77) |
| political power of states (H77) | single currency monopoly (F36) |
| rise of digital currencies (E42) | reversion from uniformity in currency (F31) |
| design of stable coins (E42) | effectiveness of stable coins (E42) |
| government issuance (H74) | reliability of currency (F31) |