The Macroeconomic Policy Implications of Digital Fiat Currency
'The Case for Digital Legal Tender' Paper Series (eCurrency Mint, Ltd.), ISBN: 978-0692849651, 2017
64 Pages Posted: 15 Jul 2018
Date Written: 2017
In this paper, we articulate a vision for how widespread adoption of Digital Fiat Currency may affect the macroeconomic levers a nation has at its disposal to steady economic growth. We describe monetary (and certain fiscal) policy implications of a nation’s choice to incorporate Digital Fiat Currency into a country’s currency mix. Specifically, we argue that Digital Fiat Currency presents a future for payments system innovation, post–crisis monetary policy implementation, and regulation of the shadow banking sector. It leverages the strengths of existing banking operations and payments systems infrastructure, while addressing critical weaknesses in the structure of money markets, and the coordination process between fiscal and monetary policy. As contemporary understanding of central banking operations evolves, and new challenges emerge in monetary and fiscal policy, as well as macroprudential regulation, the basic innovation in payment instruments offered by a Digital Fiat Currency becomes increasingly relevant and necessary.
Keywords: digital fiat currency, digital currency, fiat currency, macroeconomics, fiscal policy, monetary policy, macroprudential regulation, payments system, shadow banking, central banking, fintech
JEL Classification: E40, E42, E43, E44, E52, E62, E63, E52, E58
Suggested Citation: Suggested Citation