link3822 link3823 link3824 link3825 link3826 link3827 link3828 link3829 link3830 link3831 link3832 link3833 link3834 link3835 link3836 link3837 link3838 link3839 link3840 link3841 link3842 link3843 link3844 link3845 link3846 link3847 link3848 link3849 link3850 link3851 link3852 link3853 link3854 link3855 link3856 link3857 link3858 link3859 link3860 link3861 link3862 link3863 link3864 link3865 link3866 link3867 link3868 link3869 link3870 link3871 link3872 link3873 link3874 link3875 link3876 link3877 link3878 link3879 link3880 link3881 link3882 link3883 link3884 link3885 link3886 link3887 link3888 link3889 link3890 link3891 link3892 link3893 link3894 link3895 link3896 link3897 link3898 link3899 link3900 link3901 link3902 link3903 link3904 link3905 link3906 link3907 link3908 link3909 link3910 link3911 link3912 link3913 link3914 link3915 link3916 link3917 link3918 link3919 link3920 link3921 link3922 link3923 link3924 link3925 link3926 link3927 link3928 link3929 link3930 link3931 link3932 link3933 link3934 link3935 link3936 link3937 link3938 link3939 link3940 link3941 link3942 link3943 link3944 link3945 link3946 link3947 link3948 link3949 link3950 link3951 link3952 link3953 link3954 link3955 link3956 link3957 link3958 link3959 link3960 link3961 link3962 link3963 link3964 link3965 link3966 link3967 link3968

Cryptocurrency Costs Unlikely to Crowd Out Fiat Currencies in Korea.

Cryptocurrency Costs Unlikely to Crowd Out Fiat Currencies in Korea

Cryptocurrency Costs Unlikely to Crowd Out Fiat Currencies in Korea
 

South Korea’s central bank has published a new working paper analyzing a dual-currency regime by pitting cryptocurrencies against traditional fiat currencies.

Penned by economists and academics from the Bank of Korea and Seoul’s Hongik University, the working paper, titled ‘Crowding out in a Dual Currency Regime? Digital versus Fiat Currency’, was published earlier this week.

“We examine the impact of a privately issued digital currency and fiat currency using the simplest framework, with which we may derive the most straightforward implications,” reads the introduction of the paper. “More specifically, we attempt to answer the question of whether digital currency will crowd out fiat currency.”

The authors claim their research employs the ‘simplest model of monetary economics’ to drive these straightforward implications with the minimum number of assumptions. The research considers dual currency regime, one which sees the coexistence of privately-issued digital currencies and fiat currencies issued by the government. Bitcoin is underlined is a notable example of a private digital currency.

Making note of a number of efforts with central banks exploring the possibility of issuing their own digital currencies, the researchers point to the example of the Bank of England which has publicly revealed its effort to do so. Such an attempt “could drastically change our monetary system” the authors write.

According to the researchers, the costs associated with both fiat and digital currencies will see both of them function together with each other’s drawbacks. High costs in using one could inturn spur demand for the other, and vice-versa, allowing both fiat and digital currencies to co-exist. They state:

“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. Our results rather suggest that the threshold of equating the demand for fiat currency with that for digital currency will allow the co-existence of both currencies.”

Fiat currencies have been historically known to decrease continuously, the authors confirm, due to inflation and the factor of new money pumped in to the supply by the central bank, also known as quantitative easing.

Bitcoin, in stark contrast, has a fixed supply which would imply a “deflationary bias”, the authors note.

“This could lead to a situation in which Bitcoin drives out fiat currency as a store of value,” the authors speculate, before quickly adding:

However, security or trust issues — the decentralization of digital currency and the absence of insurance provided by governmental authorities — may prevent digital currency from being used as a store of value. Instead, digital currency may be used as a medium of exchange dominantly.

The authors also point to future research possibilities, such as covering the topic of digital money appreciating due to ever-increasing demand and the possibility of a triple currency regime, one which would see private digital currencies like bitcoin, central bank digital currencies and fiat currencies operate together.

David Ogden
Entrepreneur

Alan Zibluk Markethive Founding Member