Central bank digital currency can lead to the collapse of cryptocurrency

Peterson Ozili

MPRA Paper from University Library of Munich, Germany

Abstract: Cryptocurrencies have become popular. Economic agents use cryptocurrency such as bitcoins to make payments and it pose a threat to fiat currency. Central banks have begun to respond to this threat. They realize that they need to join the race to offer a digital currency and dominate the digital currency landscape which can lead to the collapse of most private digital currencies that are not issued by a central bank or a monetary authority. In this paper, I show how the issuance of a central bank digital currency can lead to the collapse of private digital currencies such as bitcoin. I argue that central banks will leverage on their monetary powers, and the trust that citizens have in government-backed money. This may give central banks strong incentives to issue a central bank digital currency. The issuance of a central bank digital currency can erode trust in cryptocurrencies, and lead to lack of trust in cryptocurrency, thereby leading to the collapse of cryptocurrencies although not immediately.

Keywords: central bank digital currency; cryptocurrency; bitcoin; blockchain; distributed ledger; payment system; central banks; CBDC; digital innovation; cryptoassets; stablecoin; Covid-19; fiat digital currency (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 G21 O31 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Chapter: Central Bank Digital Currency Can Lead to the Collapse of Cryptocurrency* (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:111218

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