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The great illusion of digital currencies

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  • Grym, Aleksi

Abstract

This paper is an analysis of digital currencies, including cryptocurrencies, and their potential as monetary instruments. The analysis shows that the concept of a digital currency is a fallacy. Currency, in the form of coins and banknotes, can be viewed as a physical representation of a monetary unit of account. Currency cannot be digitised, as this would inevitably mean creating a financial record keeping system based on accounts. Cryptocurrencies are not currencies at all but accounting systems for non-existent assets. Central bank digital currency would practically mean bank accounts at the central bank. Whether the general public should have access to such accounts, and whether monetary transactions should be allowed to be made anonymously or privately, are questions of policy and unrelated to cryptocurrencies or their underlying technology.

Suggested Citation

  • Grym, Aleksi, 2018. "The great illusion of digital currencies," BoF Economics Review 1/2018, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:12018
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    References listed on IDEAS

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    Cited by:

    1. Helmut Stix, 2021. "Ownership and purchase intention of crypto-assets: survey results," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(1), pages 65-99, February.
    2. Hokkanen, Topi, 2023. "Externalities and market failures of cryptocurrencies," BoF Economics Review 4/2023, Bank of Finland.
    3. Paul Pichler & Martin Summer & Beat Weber, 2020. "Does digitalization require Central Bank Digital Currencies for the general public?," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/19, pages 40-56.
    4. Paolo Fegatelli, 2019. "Central bank digital currencies: The case of universal central bank reserves," BCL working papers 130, Central Bank of Luxembourg.
    5. A. Il’inskii I. & Z. Mierzwa & А. Ильинский И. & З. Межва, 2019. "Распределение богатства в экосистеме биткоин // Wealth Distribution in the Bitcoin Ecosystem," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, vol. 23(2), pages 6-16.
    6. Serif Dilek, 2019. "Cryptocurrencies in the Digital Era: The Role of Technological Trust and Its International Effects," Contributions to Economics, in: Umit Hacioglu (ed.), Blockchain Economics and Financial Market Innovation, chapter 0, pages 453-474, Springer.

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