Researchers at the International Monetary Fund say crypto assets and other forms of electronic money may one day replace cash and render traditional bank deposits irrelevant.
A new paper published by the IMF outlines a number of different scenarios and highlights how cryptocurrencies such as stablecoins could instigate major disruption.
“In short, the paper argues that the two most common forms of money today will face tough competition and could even be surpassed.
Cash and bank deposits will battle with e-money, electronically stored monetary value denominated in, and pegged to, a common unit of account such as the euro, dollar, or renminbi, or a basket thereof.
Increasingly popular forms of e-money are stablecoins. E-money may be more convenient as a means of payment, but questions arise on the stability of its value. It is, after all, economically similar to a private investment fund guaranteeing redemptions at face value. If 10 euros go in, 10 euros must come out. The issuer must be in a position to honor this pledge. Banks will feel pressure from e-money, but should be able to respond by offering more attractive services or similar products. Nevertheless, policymakers should be prepared for some disruption in the banking landscape.”
The paper also highlights the risky, speculative market of cryptocurrencies that are not pegged to fiat, such as Bitcoin and Ethereum.
“We refer to other cryptocurrencies as ‘public coins,’ including Bitcoin and Ethereum…
Differences in terms of stability of value are actually quite marked between different forms of money. Users may compare monies according to returns and risks. We measure these in nominal terms, relative to domestic currency, unless otherwise noted. This helps us focus just on the design of monies,