Cryptocurrencies and monetary policy

16-07-2018

Decentralised ledger technology has enabled cryptocurrencies to become a new form of money that is privately-issued, digital and that permits peer-to-peer transactions. However, the current volume of transactions in such cryptocurrencies is still too small to make them serious contenders to replace official currencies. Underlying this are two factors. First, cryptocurrencies do not perform the role of money well, because their value is very volatile and they are thus not very good stores of value. Second, cryptocurrencies are managed in ways that are very primitive compared to what modern currencies require. These shortcomings might be corrected in the future to increase the popularity and reach of cryptocurrencies. However, those that manage currencies, in other words monetary policymakers, cannot be outside any societal system of checks and balances. For cryptocurrencies to replace official money, they would have to conform to the institutional set up that monitors and evaluates those who have the power to manage money. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs Committee.

Decentralised ledger technology has enabled cryptocurrencies to become a new form of money that is privately-issued, digital and that permits peer-to-peer transactions. However, the current volume of transactions in such cryptocurrencies is still too small to make them serious contenders to replace official currencies. Underlying this are two factors. First, cryptocurrencies do not perform the role of money well, because their value is very volatile and they are thus not very good stores of value. Second, cryptocurrencies are managed in ways that are very primitive compared to what modern currencies require. These shortcomings might be corrected in the future to increase the popularity and reach of cryptocurrencies. However, those that manage currencies, in other words monetary policymakers, cannot be outside any societal system of checks and balances. For cryptocurrencies to replace official money, they would have to conform to the institutional set up that monitors and evaluates those who have the power to manage money. This document was provided by Policy Department A at the request of the Economic and Monetary Affairs Committee.

External author

Grégory CLAEYS, Maria DEMERTZIS, Konstantinos EFSTATHIOU (Bruegel)