The current age is all about innovation and diversity including money, as we can make payment through waving a phone, clicking a mouse, or swiping a card or we can use notes and coins? In developed counties, the concept of cash and is transforming into digital currency. We have a dual monetary system in today’s world that involves privately issued money by telecom companies, all kinds of banks, and specialized payment providers.
This system allows having important advantages including product diversity and innovation mostly by the private sector; efficiency and stability are ensured by the public sector. The goal of diversity and innovation is on one side and stability and efficiency are on the other side are correlated. It is normal to ask at the time of emerging of new technology that how today’s dual monetary system is will evolve. Like the emergence of digitalized money that is called the central bank digital currency would displace privately issued money or offer it to enhance.
This is a very possible concept whereas the central bank should not face a choice between encouraging the private sector and offering the central bank digital currency to provide its digital variant. These both can complement and coincide with each other.
Public-Private Coexistence
You may find it puzzling to consider that publicly and privately issued money has coexisted in history. Then why has not the more convenient, innovative, adaptable and user-friendly money taken over completely?
The answer involves the fundamental symbiotic relationship: the choice is available to redeem private money into completely safe liquid and safe money that may be central bank reserves held in specific banks and notes or coins.
The private dues that can be redeemed at the fixed price into central bank currency become an established store of value. It is possible to exchange ten dollars in a bank account for the ten-dollar bill accepted as legal tender to manage debt. Privately issued money is considered an efficient means of payment to the extent that can be redeemable into central bank currency. In other words, central banks’ currency should have the essential option of redemption for stability, innovation, diversity, and interoperability of privately issued money.
Central Bank Currency in the Digital Age Will Face Pressures
Do you have any idea that after entering into the digital age what will become of this system? Will the digital currencies be so enticing that why overshadow privately issued money? Or there would still be room will exist for innovation for the private sector? It all depends on the ability and willingness of central banks to significantly and consistently innovate. Indeed, keeping the speed with technological advancement, private sector innovation, and instantly evolving user needs is not an easy feat. Central banks will need to be more advanced like Microsoft and Apple to keep the digital currencies on the frontier of technology.
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