{
  "title": "Public and Private Money Can Coexist in the Digital Age",
  "publication": "IMF Blog, February 18, 2021",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2021/02/18/blog-public-and-private-money-can-coexist-in-the-digital-age",
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  "summary": "We value innovation and diversity—including in money. In the same day, we might pay by swiping a card, waving a phone, or clicking a mouse. Or we might hand over notes and coins, though in many countries increasingly less often.",
  "sections": [
    {
      "heading": "Overview and authorship",
      "content": "- Title: Public and Private Money Can Coexist in the Digital Age\n- Authors: Tobias Adrian, Tommaso Mancini-Griffoli\n- Date: February 18, 2021"
    },
    {
      "heading": "Dual monetary system: structure and advantages",
      "content": "- Today’s world is characterized by a dual monetary system: privately-issued money built upon a foundation of publicly-issued money by central banks.\n- Advantages of the dual system:\n  - Innovation and product diversity, mostly provided by the private sector.\n  - Stability and efficiency, ensured by the public sector.\n- Tradeoff: innovation and diversity vs. stability and efficiency — more of one usually means less of the other.\n- Policy choice for countries (especially central banks): how much to rely on the private sector versus how much to innovate themselves; dependent on preferences, available technology, and the efficiency of regulation."
    },
    {
      "heading": "Public-private coexistence: mechanics and rationale",
      "content": "- Fundamental symbiotic relationship: private money’s option to redeem into perfectly safe and liquid public money (notes and coins or central bank reserves) underpins stability.\n- Key mechanisms and enablers:\n  - Redemption at a fixed face value into central bank currency makes private monies a stable store of value.\n  - Sound regulation and supervision, government backstops such as deposit insurance and lender last resort, and partial or full backing in central bank reserves.\n  - Redemption enables interoperability: transfers between different banks are settled via central bank currency that both banks trust and hold.\n  - Interoperability spurs competition, innovation, and diversity of money forms.\n- Conclusion: the option of redemption into central bank currency is essential for stability, interoperability, innovation, and diversity; a system with only private money would be too risky, and one with only central bank currency could miss important innovations."
    },
    {
      "heading": "Central bank currency in the digital age: pressures and technological challenges",
      "content": "- Uncertainty about whether central bank digital currencies (CBDCs) will displace privately-issued money or allow it to flourish depends on central banks’ ability and willingness to consistently and significantly innovate.\n- CBDCs analogies and implications:\n  - CBDCs are akin to both a smart-phone and its operating system: settlement technology (bits transferred) and a form of money (functionality and appearance).\n  - Central banks would need to act more like Apple or Microsoft to keep CBDCs at the technology frontier and in users’ wallets.\n- Technological dynamics:\n  - CBDCs may be managed from a central database initially, but might migrate to distributed ledgers as technology matures.\n  - Major ledger technologies may change following advancements, requiring frequent architectural redesigns.\n  - User needs and expectations will evolve quickly and unpredictably; new transfer modalities (e.g., automated transfers by chips embedded in products) may demand new money features.\n- Supply-side pressures:\n  - Private sector will continue to innovate with new eMoney and stablecoin schemes.\n  - Regulators will seek to contain risks while questions arise about interaction between private digital monies and CBDCs."
    },
    {
      "heading": "Partnership opportunities with the private sector",
      "content": "- Central banks need not be alone; CBDC design can encourage private-sector innovation on top of it.\n- Design tools and possibilities:\n  - Open application programming interfaces (APIs) could enable a developer community to expand CBDC usability beyond plain e-wallets.\n  - Example add-on services: automated payments (pay-on-receipt), look-up functions to send money using phone numbers.\n  - Vetting add-on services for safety will be essential.\n- Coexistence and synthetic/digital private monies:\n  - Some central banks may allow other forms of digital money to co-exist, leveraging CBDC settlement functionality and stability—analogous to parallel operating systems.\n  - A private digital money would be a stable store of value if redeemable into central bank currency (digital or non-digital) at a fixed face value, achievable if fully backed by central bank currency.\n  - It would be an efficient means of payment if settlement is immediate on its network and networks are interoperable through corresponding moves of central bank currency.\n  - This form of digital money (previously called synthetic currency) could co-exist with CBDC under a licensing arrangement and regulatory framework that fulfills public policy objectives:\n    - Operational resilience\n    - Consumer protection\n    - Market conduct and contestability\n    - Data privacy\n    - Prudential stability\n  - Financial integrity could be ensured via digital identities and complementary data policies; partnering with central banks requires a high degree of regulatory compliance."
    },
    {
      "heading": "Policy implications and country choices",
      "content": "- If countries adopt CBDCs, they should consider leveraging the private sector to keep pace with technological change and user needs.\n- The dual-monetary system can be extended to the digital age:\n  - Central bank currency, regulation, supervision, and oversight remain essential to anchor stability and efficiency.\n  - Privately-issued money can supplement the foundation with innovation and diversity—potentially even more than today.\n- Final policy note: where central banks position themselves along the continuum between private-sector and public-sector provision of money will vary by country and ultimately depend on preferences, technology, and the efficiency of regulation."
    },
    {
      "heading": "Engagement",
      "content": "- The authors invite reader feedback via a 3-question survey on IMFBlog.\n\nIMF Blog post by Tobias Adrian and Tommaso Mancini-Griffoli, February 18, 2021.\n\n---\n\n\n References\n\n- in the past\n\nSource: https://www.imf.org/en/blogs/articles/2021/02/18/blog-public-and-private-money-can-coexist-in-the-digital-age"
    }
  ],
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    "[Markdown version](/en/blogs/articles/2021/02/18/blog-public-and-private-money-can-coexist-in-the-digital-age/index.md)",
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    "Authors: Tobias Adrian, Tommaso Mancini-Griffoli",
    "Published: February 18, 2021",
    "Title: Public and Private Money Can Coexist in the Digital Age",
    "Authors: Tobias Adrian, Tommaso Mancini-Griffoli",
    "Date: February 18, 2021",
    "Today’s world is characterized by a dual monetary system: privately-issued money built upon a foundation of publicly-issued money by central banks.",
    "Advantages of the dual system:",
    "Tradeoff: innovation and diversity vs. stability and efficiency — more of one usually means less of the other.",
    "Policy choice for countries (especially central banks): how much to rely on the private sector versus how much to innovate themselves; dependent on preferences, available technology, and the efficiency of regulation.",
    "Fundamental symbiotic relationship: private money’s option to redeem into perfectly safe and liquid public money (notes and coins or central bank reserves) underpins stability.",
    "Key mechanisms and enablers:",
    "Conclusion: the option of redemption into central bank currency is essential for stability, interoperability, innovation, and diversity; a system with only private money would be too risky, and one with only central bank currency could miss important innovations.",
    "Uncertainty about whether central bank digital currencies (CBDCs) will displace privately-issued money or allow it to flourish depends on central banks’ ability and willingness to consistently and significantly innovate.",
    "CBDCs analogies and implications:",
    "Technological dynamics:",
    "Supply-side pressures:",
    "Central banks need not be alone; CBDC design can encourage private-sector innovation on top of it.",
    "Design tools and possibilities:",
    "Coexistence and synthetic/digital private monies:",
    "If countries adopt CBDCs, they should consider leveraging the private sector to keep pace with technological change and user needs.",
    "The dual-monetary system can be extended to the digital age:",
    "Final policy note: where central banks position themselves along the continuum between private-sector and public-sector provision of money will vary by country and ultimately depend on preferences, technology, and the efficiency of regulation.",
    "The authors invite reader feedback via a 3-question survey on IMFBlog.",
    "[in the past](http://blogs.imf.org/2019/09/26/from-stablecoins-to-central-bank-digital-currencies/)"
  ],
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