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Central Bank Digital Currency in Historical Perspective: Another Crossroad in Monetary History

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  • Michael D. Bordo

Abstract

Digitalization of Money is a crossroad in monetary history. Advances in technology has led to the development of new forms of money: virtual (crypto) currencies like bitcoin; stable coins like libra/diem; and central bank digital currencies (CBDC) like the Bahamian sand dollar. These innovations in money and finance have resonance to earlier shifts in monetary history: 1) The shift in the eighteenth and nineteenth century from commodity money (gold and silver coins) to convertible fiduciary money and inconvertible fiat money; 2) the shift in the nineteenth and twentieth centuries from central bank notes to a central bank monopoly; 3) Then evolution since the seventeenth century of central banks and the tools of monetary policy. This paper analyzes the arguments for a CBDC through the lens of monetary history. The bottom line is that the history of transformations in monetary systems suggests that technical change in money is inevitably driven by the financial incentives of a market economy. Government has always had a key role in the provision of outside money, which is a public good. Government has also regulated inside money provided by the private sector. This held for fiduciary money and will likely hold for digital money. CBDC could make monetary policy more efficient, and it could transform the international monetary and payments systems.

Suggested Citation

  • Michael D. Bordo, 2021. "Central Bank Digital Currency in Historical Perspective: Another Crossroad in Monetary History," NBER Working Papers 29171, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:29171
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    Cited by:

    1. Max Fuchs, 2022. "CBDC as Competitor for Bank Deposits and Cryptocurrencies," MAGKS Papers on Economics 202210, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Chen, Hongyi & Siklos, Pierre L., 2022. "Central bank digital currency: A review and some macro-financial implications," Journal of Financial Stability, Elsevier, vol. 60(C).
    3. Bhaskar, Ratikant & Hunjra, Ahmed Imran & Bansal, Shashank & Pandey, Dharen Kumar, 2022. "Central Bank Digital Currencies: Agendas for future research," Research in International Business and Finance, Elsevier, vol. 62(C).

    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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