Working Paper: NBER ID: w26300
Authors: Markus K. Brunnermeier; Harold James; Jean-Pierre Landau
Abstract: The ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange. We may see an unbundling of the separate roles of money, creating fiercer competition among specialized currencies. On the other hand, digital currencies associated with large platform ecosystems may lead to a re-bundling of money in which payment services are packaged with an array of data services, encouraging differentiation but discouraging interoperability between platforms. Digital currencies may also cause an upheaval of the international monetary system: countries that are socially or digitally integrated with their neighbors may face digital dollarization, and the prevalence of systemically important platforms could lead to the emergence of digital currency areas that transcend national borders. Central bank digital currency (CBDC) ensures that public money remains a relevant unit of account.
Keywords: digital currencies; monetary systems; currency competition; central bank digital currency
JEL Codes: E41; E42; E51; E52; E58; G21; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Digital currencies (E42) | Increased competition among currencies (F31) |
| Digital currencies (E42) | Unbundling of traditional roles of money (E49) |
| Integration with digital platforms (O36) | Currency substitution (F31) |
| Digital currencies (E42) | Upheaval of the international monetary system (F33) |
| Socio-digital integration of countries (F63) | Reliance on digital currencies over traditional fiat currencies (E42) |