The Future of Money

The Future of Money in an Age of Central Bank-Issued Cryptocurrency and Digital Currency

Investors have been rendered numb by the recent collapse in crypto assets, which has definitely left them with some concern. However, there is little doubt that digital currency is the way of the future.

Investors have been rendered numb by the recent collapse in crypto assets, which has definitely left them with some concern. However, there is little doubt that digital currency is the way of the future. The question that arises is, what form will it take? In the most recent edition of Finance & Development, some of the most knowledgeable people in the world attempt to respond to a subject that is both difficult and politically fraught.

Evidently, the evolution of digital money has been going on for quite some time now. The advent of new technology has sparked hopes of democratising finance and increasing access to a wider range of financial goods and services. One of the primary objectives is to realise instantaneous and domestic payments that are significantly less expensive. People living in less developed nations stand to benefit tremendously from these changes.

Eswar Prasad of Cornell University takes us on a tour of the various forms of digital money that are currently in use as well as those that are in the process of being developed. He looks at what these changes mean for finance, monetary policy, how money moves around the world, and even how societies are put together.

It's possible that not all forms of digital currency will be successful. Ravi Menon, a Singaporean, is among many who believe Bitcoin and other cryptocurrencies should not be used as currency. Bitcoin has lost roughly 70% of its value since its peak in November. Prices have little relation to the underlying economic value of the asset, despite the fact that it is regularly traded and heavily speculated upon. As Menon points out, many stablecoins have been shown to be anything but stable, and their stability is dependent on the quality of the reserve assets that are supporting them. Stablecoins are supposed to tame the market's volatility.

But journalist Michael Casey says that decentralised finance and cryptocurrencies are not only here to stay but could also help solve problems in the real world, like the energy crisis.

Regulation is essential. According to Aditya Narain and Marina Moretti of the International Monetary Fund, the regulatory web is now being built, and it is anticipated that a pattern will emerge. However, they suggest that the longer this process takes, the more likely it is that national authorities will become mired in varying legal frameworks. They want regulation that is coordinated internationally to bring order to the markets, help customers feel more confident, and create a safe place for innovation to happen.

In the meantime, central banks are mulling over the possibility of launching their own digital currencies. Agustin Carstens, the head of the Bank for International Settlements, and his coauthors propose that centralised financial institutions should take advantage of the technological advancements made possible by cryptocurrencies while also laying a vital foundation for confidence. Josh Lipsky of the Atlantic Council says that privacy and cybersecurity risks could be lessened by using digital currencies that have been carefully made by central banks.

In other parts of this issue, our writers talk about the pros and cons of decentralised finance, the future of cross-border payments, and how India and African countries are moving the digital payment frontier forward.

It is too soon to speculate on how the digital landscape will develop in the future. But if we make the right decisions about policy and rules, we could imagine a future where billions of people carry around digital wallets with different currencies backed by both the government and private entities.