From the Curse of Cash to the Burden of Digitization

Are cryptocurrencies still an answer in search of a problem? For reasons discussed at length in Rogoff (2016), decentralized “permission-less” blockchain tokens are extremely unlikely to replace centralized government-issued “fiat” money. As the long history of currency illustrates, while it is usually the private sector that is originally responsible for the most important innovations, governments eventually regulate and appropriate. However fervently cryptocurrency evangelists believe that superior private technology must eventually win out in the long run, they do not seem to understand that, when it comes to the core of the monetary system, governments cannot afford to lose, and they will not. Functions such as the unit of account, the medium for final clearing of transactions among financial institutions, and especially the payment of taxes and transfers are simply too vital for modern-day countries to leave in the hands of a decentralized private sector system. History shows that governments always have the capacity to keep changing the rules of the game until fiat money wins out…