Physical vs digital currency: a difference that makes a difference

Nicola Amendola, Luis Araujo () and Leo Ferraris ()
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Luis Araujo: Department of Economics, Michigan State University and Sao Paulo School of Economics - FGV
Leo Ferraris: Department of Economics, Management and Statistics, Università di Milano-Bicocca

Theoretical Economics, Forthcoming

Abstract: This paper compares digital and physical currency, focusing on a single intrinsic difference: digital, unlike physical currency, allows the monetary authority to trace the monetary flows in and out of the accounts. We show that this technological advance in record-keeping can be used by the monetary authority to improve upon physical currency and achieve efficiency in a wide range of circumstances.

Keywords: Cash; digital currency; optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E40 (search for similar items in EconPapers)
Date: 2026-01-14
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