Bank of Korea: Costs Could Limit Cryptocurrency Use

Bank of Korea has published a new working paper that speculates on how a cryptocurrency economy would impact central banks.

AccessTimeIconApr 24, 2017 at 2:40 p.m. UTC
Updated Sep 11, 2021 at 1:15 p.m. UTC

South Korea's central bank has published a new working paper on cryptocurrencies.

Drafted by researchers from the Bank of Korea and Seoul's Hongik University, the paper seeks to identify factors that could drive the use of a blockchain-based currency over a government-issued one.

According to the authors, there is likely to be a symbiotic relationship between both economies should digital currencies become more widely used. Namely, when the cost of using one currency rises, the other is likely to fall, they speculate, thereby increasing the attractiveness of the other option.

Yet, they believe costs will keep the systems in balance.

The authors write:

"High costs of using fiat currency increase the demand for digital currency. Similarly, high costs of using digital currency relative to fiat currency raise the demand for fiat currency. In a world of imperfect currencies with uncertain costs associated with the use of a currency, it is unlikely that the relative costs of using digital currency will be low enough to drive out and accordingly crowd out fiat currency entirely."

The research fits into a broader trend among central banks, which are investigating the deployment of digital currencies, both by the institutions themselves as well as other groups or organizations.

Indeed, the authors posit that their research could give financial regulators greater insights into these dynamics as such systems become more prevalent.

"The result of our paper can be useful to policymakers and regulators who want to have insights in the new monetary system where a privately issued digital currency coexists with a central bank issued fiat currency," the authors write.

The paper is the latest work for Bank of Korea, which has been among the more vocal and progressive central banks on the issue of blockchain tech.


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