A new research paper co-authored by an economics advisor at the Federal Reserve Bank of Philadelphia explores whether private currencies, such as digital currencies like bitcoin, can compete with government-issued alternatives.
"Can competition among privately issued fiat currencies such as Bitcoin or Ethereum work?" the paper, published on 3rd April, asks. "Only sometimes. To show this, we build a model of competition among privately issued fiat currencies."
The paper, co-authored by Jesús Fernández-Villaverde of the University of Pennsylvania and Philadelphia Fed researcher Daniel Sanches, seeks to unpack how private forms of money, including digital currencies, interact with one another in terms of price stability.
Among the notable arguments is that the rise of the Internet has resulted in an environment in which private monies like bitcoin can competitively emerge.
"Our model highlights how the issuing of a private currency is logically separated from banking. Both tasks were historically linked for logistical reasons: banks had a central location in the network of payments that made it easy for them to introduce currency in circulation," the paper states, adding:
The full paper can be found below:
Image via Shutterstock
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.