The war over virtual money is real

Abstract

The technologies that have been used to create new kinds of payment systems — cryptography and mobile phones, biometrics and blockchains — can also be used to create new kinds of money. While commercial banks could use these new technologies to manage wholly digital versions of existing fiat currencies, the low cost and widespread availability of those technologies mean that organisations other than nation states can also think about creating digital currencies. This paper builds on a previous paper that explored who these organisations might be (the ‘5Cs framework’) and investigated their motivations, to look at two specific and contrasting proposals that move these discussions from theoretical to actual policy concerns. These examples are taken from the private sector (Facebook’s Libra) and the public sector (the People’s Bank of China digital currency). The paper argues that the competition between these digital currencies is about hegemony not hash rates, and that shifts in the tectonic plates of economic power ultimately result in earthquakes that change the landscape of political power.