By Bilal Hafeez
Digital Currency Areas (Vox CEPR Policy Portal, 7 min read)
(You can read the article by clicking here)
This thought-provoking piece considers the impacts of digital currency areas on the international monetary system. A digital currency area (DCA) is a network where payments and transactions are made digitally by using a currency that is specific to this network. These are either new digital currencies like Facebook’s Libra or closed networks that use existing official currencies like Ant Financial in China. The article argues that DCAs will compete on economies of scale (and scope) rather than macro-economic performance as in traditional currency areas. There are concerns, however, that this type of competition may not complement the differing regulatory and economic frameworks that exist across different jurisdictions. This gives rise to the digital paradox: DCAs will break barriers and cross borders, but due to this dissimilarity in frameworks, it may be impossible to use the same digital currency in different jurisdictions, therefore further fragmenting the international financial system. (This angle shows a more economic case for digital currencies to endure).
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