Competition between digital currencies within the transformation of traditional monetary systems

Abstract

The article explains the fundamental difference between traditional (state) and private monetary systems, reveals the cause-and-effect relationship of macroeconomic instability of modern monetary systems, and identifies the need for radical transformation of traditional monetary systems being digitalized. We identify the features of monetary competition between digital currencies (public and private), as well as between fiat currencies in traditional monetary systems. We conclude that traditional approaches explaining the advantages of fiat money over private money are no longer valid in digital age. We argue that future monetary systems will be influences by free competition between all forms of digital currencies. This framework will dramatically reduce the number of intermediaries for transactions, provide users with greater control over their data, concentrate the movement toward higher decentralization and unified transactions. New monetary systems will enable a greater division of functions and power between traditional central banks and private business models. Due to new standards, information services and decentralized applications, the issuance and circulation of digital currencies will contribute to the interoperability of business platforms. Reduced costs related to switching among digital currencies, along with network effects, might make competition between the currencies much more real and free.