Competing With Bitcoin - Some Policy Considerations for Issuing Digitalized Legal Tenders

Arto Kovanen


The proliferation of peer-to-peer virtual alternatives to traditional banknotes has raised concerns among policymakers about the future of traditional means of making payments and how it might affect monetary policy implementation and its effectiveness. This study provides a brief overview of the existing research in this area. It compares positions taken in the literature by authors on some of the key policy issues relevant for central banks when thinking about the issuance of digitalized legal tenders. We examine the implications of government issued digital alternatives to traditional currencies for monetary policy effectiveness, payments and settlements, and financial market stability. We also discuss recent advances in financial technology to improve the making of payments and settlements, which might help contribute to financial inclusion. At the same time, new technologies represent challenges for regulatory authorities, for instance related to efforts to contain anti-money laundering and prevent financing of terrorism. A number of authors argue that government issued digital currency is necessary to address the flaws in private crypto currencies, and to improve monetary policy effectiveness. Central banks have begun to analyze possible features of digitalized legal tenders, to better understand the policy considerations involved and effects these could have for interest rate transmission and financial markets, but there is no clear consensus on key modalities associated with digitalized legal tenders. Moreover, many central banks do not regard privately issued virtual currencies as a serious threat to traditional currencies. Given the ongoing debate, it is difficult to make firm predictions about the impact of central bank issued digital currencies on monetary policy transmission and financial markets at this point.

Full Text:



Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

This journal is licensed under a Creative Commons Attribution 4.0 License.

International Journal of Financial Research
ISSN 1923-4023(Print)ISSN 1923-4031(Online)


Copyright © Sciedu Press

To make sure that you can receive messages from us, please add the '' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.