The Rise of Digital Money

This paper by the IMF offers a conceptual framework to categorize new digital monies, identify some of their risks, think through the implications, and offer some policy options for central banks to consider. The focus is mostly on the interplay between new forms of money and the banking sector; thus on financial stability and consumer protection. Other risks and implications—touching on financial integrity, monetary policy and capital flows, and antitrust—are mentioned in passing but do not represent the core of the discussion.

In short, the paper argues that the two most common forms of money today will face tough competition and could even be surpassed. Cash and bank deposits will battle with e-money, electronically stored monetary value denominated in, and pegged to, a common unit of account such as the euro, dollar, or renminbi, or a basket thereof. Increasingly popular forms of e-money are stablecoins. E-money may be more convenient as a means of payment, but questions arise on the stability of its value. It is, after all, economically similar to a private investment fund guaranteeing redemptions at face value. If 10 euros go in, 10 euros must come out. The issuer must be in a position to honor this pledge