Money in the age of digitisation and crypto-currencies

The age of digitisation has also made inroads into the sphere of money, and not just since the increasing prominence of crypto-currencies. Rather, for many years now there has been a visible trend away from cash toward electronic payments, above all using EC cards. This shift will no doubt persist in the years to come, as technical advances will presumably make the corresponding use simpler and smoother.

It is doubtful whether the crypto-currencies currently available, in particular Bitcoin, can notably profit from this trend. A significant point of criticism in this regard: crypto-currencies lack key standards that the economic system today expects money (be it analogue or digital) to meet. Noteworthy in this regard are above all the immense price fluctuations, the absent basis for permanent confidence in the currencies, and low acceptance of the suppliers. Moreover, for the foreseeable future real-time payments (which are considered a key advantage of crypto-currencies) will still be possible on a wide scale using traditional means of payment, at least within the limits of currency areas.

Central bank representatives are largely in agreement that going forward private crypto-currencies will not be widely accepted for everyday use. Opinions differ, however, when it comes to whether and to what extent there is a need for central banks to issue their own crypto-currencies. These could exist as an additional form of money alongside cash and commercial banks’ book money. Precisely in countries witnessing a sharp drop in the importance of cash, and they include Sweden, the central bankers are open toward such ideas and have already launched relevant projects. That said, Deutsche Bundesbank and Schweizerische Nationalbank have come out very strongly against central banks issuing crypto-currencies. Apart from the fact that their representatives do not discern a need for this form of money, they feel such instruments spell a significant risk to commercial banks being able to grant loans and to financial stability.

The first example of a government crypto-currency was recently introduced in the form of the Venezuelan “Petro”. However, it is hardly likely to serve as an example and trailblazer for renowned central banks. After all, the Venezuelan government’s motives can hardly be compared with the considerations of established central bankers or freedom-loving software developers. Rather, it is solely an attempt by the country’s President Maduro to use the increasing awareness of crypto-currencies to get his hands on hard currency and thus improve the treasury’s coffers.

Central-bank-issued crypto-currencies do not initially look likely to be well received in everyday use by the inhabitants of stable, developed currency areas such as Euroland or the United States. The projects now in part underway are too far away from being realised. Many central banks are focussing their research efforts not on issuing their own crypto-currencies, but instead on creating more efficient payment transaction and security settlement systems based on Blockchain technology. Here, even Deutsche Bundesbank believes that the ongoing attempts are highly promising.

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