Strategic Digitization in Currency and Payment Competition

We model the competition between digital forms of fiat money and private digital money (PDM). Countries strategically digitize their fiat money — upgrading existing or launching new payment systems (including CBDCs) — to enhance adoption and counter PDM competition. A pecking order emerges: less dominant currencies digitize earlier, reflecting a first-mover advantage; dominant currencies delay digitization until they face competition; the weakest currencies forgo digitization. Delayed digitization allows PDM to gain dominance, eventually weakening fiat money’s role. We also highlight how geopolitical considerations, stablecoins, and interoperability between fiat and private digital money shape the digitization of money and monetary competition.