The prospect of cryptocurrencies becoming money

Abstract

The FinTech revolution has the potential to improve the existing bank-based monetary system. A case in point is the payment service providers (PSPs), which gave indirect access to basic bank services to millions of unbanked households and firms in emerging economies. Yet contrary to the initial hopes and declarations, cryptocurrencies, which rank among the flagships of the FinTech revolution, will not replace, at least in the near future, the existing bank-based monetary system since the trust in the blockchain technology alone cannot substitute for trust in reputation-based public institutions which stabilize the value of money and provides its legal protection. The current system cannot be easily replaced by an alternative one as it is the product of a long evolution that continually adjusted its properties to the needs of the economy. Stablecoins at their today&s;s state of development are yet to become eligible candidates for displacing the bank-based money. In point of fact, they owe their stability to the existing international currencies ensured by the currency board mechanism. Moreover, their wide acceptance, as originally envisaged for Facebook&s;s Libra, might entail serious risks to monetary and financial stability. The proposal to issue the Central Bank Digital Currencies (CBDCs) is a response to this threat.