Recommended articles about Fintech, digital and crypto currencies

Below is a selection of VOX articles published during March about Fintech and Digital and Crypto currencies based on a new ebook:

The economics of fintech and digital currencies: A new eBook. In recent years, the arrival of new financial technologies has opened a debate about the extent of their implications for the nature of money, the way new ventures are funded, and so on. This column introduces a new Vox eBook that summarises current research on the impact of these changes and how to manage the possible disruption in financial markets, where governance and regulation are central.

Central bank digital currency: Concepts and trends. Recent years have seen the emergence of digital currencies such as Bitcoin as potential private sector money. Central banks are also considering whether to issue their own digital tokens to enable decentralised verification of transactions while maintaining attractive cash-like features. This column lays out the four existing proposals for implementing central bank digital currency. Due largely to technical constraints, however, central banks in general have not found a compelling reason to issue their own digital currency.

The doomsday economics of ‘proof-of-work’ in cryptocurrencies. Bitcoin and related cryptocurrencies are exchanged via simple technical protocols for communication between participants, as well as a publicly shared ledger of transactions known as a blockchain. This column discusses research on how cryptocurrencies verify that payments are final, that is, that they are irreversible once written into the blockchain. It points to the high costs of achieving such finality via ‘proof-of-work’ and to a crucial externality in the transaction market, and argues that with the current technology, the liquidity of cryptocurrencies is set to shrink dramatically in the years to come.

Money, digital cash and cryptocurrencies: Privacy matters. Alongside liquidity and store of value, is privacy an important attribute of money? Using laboratory experiments, the column shows that privacy matters, and increases the overall appeal of money. The experiments suggest that future competition between alternative currencies will depend on how the three properties are mixed.

Central bank digital currencies and private banks. The idea of a central bank digital currency has prompted a mixed reaction among economists. This column uses a simple theoretical framework to investigate the impact of such a currency on a monopolistic banking sector. There are two main results. First, the introduction of an interest-bearing digital currency increases financial inclusion, diminishing the demand for physical cash. Second, while an interest-bearing digital currency reduces monopoly profit, it need not disintermediate banks in any way. A central bank digital currency may, in fact, lead to an expansion of bank deposits if the resulting competition compels banks to raise their deposit rates.

Public versus private digital money: Macroeconomic (ir)relevance. Both proponents and opponents of central bank digital currency have suggested that it would fundamentally change the macroeconomy. This column questions this paradigm, arguing that the introduction of such a currency need not alter the allocation nor the price system. Concerns about central bank digital currency choking investment, cutting into banks’ profits, or increasing the likelihood of bank runs are misplaced.

Extra. Fintech: What’s Real, and What’s Hype (Knowledge@Wharton).