Reinventing money and lending for the digital age

Abstract

Bitcoin and other privately created digital currencies are beginning to challenge central banks’ monopolies on money creation. These decentralized cryptographic payment media could ultimately displace legacy banking, finance, and Payment services at a lower cost across the globe. These currencies are likely to continue experiencing a faster rate of improvement than traditional payment media and require less force for safekeeping. This chapter explores some of the forces that led to the rise of Bitcoin including the ball-in tax on deposits during the Cyprus banking crisis in 2013. We also examine the relative stability of Bitcoin as a store value. We also consider new internet-based P2P lending arrangements using Bitcoin rather than dollars as a payment media. Finally, we reassess Stanley Fischer’s criticism of Hayek’s competitive private currency proposal in light of Bitcoin and other open source digital currencies.