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Digital currencies and the concept of money as a social agreement

Author

Listed:
  • Milkau, Udo

    (Goethe University Frankfurt, Germany)

  • Bott, Jürgen

    (University of Applied Sciences Kaiserslautern, Germany)

Abstract

The first appearance of digital ‘currency’ tokens following the implementation of Bitcoin was a catalyst for discussion about the nature of money and the future development of both fiat monies and central bank money. Indeed, the discussion today remains dominated by arguments concerning the definition of money and the role of central banks. However, ‘money’ must be understood as a social agreement between economic agents who confer legitimacy and value upon it by agreeing to accept it, both now and in the future. This paper presents a framework to understand money as a social agreement in the age of digitisation using four different mechanisms: game theory with tokens, market-driven development of account-based money, liabilities (of banks to their clients and central banks to commercial banks), and a trust-based mechanism for digital coins provided by a central institution. Any development of money in the digital age must consider its users’ perception of stability, security, convenience, freedom of choice and trust in its ‘reusability’. Complementing the current discussion within central banks, this paper considers how social dynamics in the 21st century might challenge the traditional definition and acceptance of money.

Suggested Citation

  • Milkau, Udo & Bott, Jürgen, 2018. "Digital currencies and the concept of money as a social agreement," Journal of Payments Strategy & Systems, Henry Stewart Publications, vol. 12(3), pages 213-231, September.
  • Handle: RePEc:aza:jpss00:y:2018:v:12:i:3:p:213-231
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    References listed on IDEAS

    as
    1. Milton Friedman, 1959. "The Demand for Money: Some Theoretical and Empirical Results," NBER Chapters, in: The Demand for Money: Some Theoretical and Empirical Results, pages 1-29, National Bureau of Economic Research, Inc.
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    4. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
    5. Bott, Jürgen & Milkau, Udo, 2016. "Towards a framework for the evaluation and design of distributed ledger technologies in banking and payments," Journal of Payments Strategy & Systems, Henry Stewart Publications, vol. 10(2), pages 153-171, June.
    6. Morten Linnemann Bech & Rodney Garratt, 2017. "Central bank cryptocurrencies," BIS Quarterly Review, Bank for International Settlements, September.
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    More about this item

    Keywords

    digital currency; digital tokens; Bitcoin; nature of money; central bank digital currency;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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