Amol Agrawal
The last decade has been quite an eventful one for students of monetary economics, thanks to digital currencies. We have seen three waves in digital currencies so far and maybe, there is a fourth one in the making as well.
The first wave was in 2008, with Bitcoin taking off as the first digital currency. This was a long wave as Bitcoin idea led to many private digital currencies such as ethereum, dash, litecoin, tether and the like. They were collectively named as cryptocurrencies as they were based on algorithms. (For details, please see my earlier piece on bitcoin).
The next two waves happened very quickly and simultaneously. In 2019, Facebook launched Libra, which was an improvement over the decentralised cryptocurrencies. The first improvement was that Libra was backed by Facebook, along with other digital economy firms. The idea here was to give Facebook’s subscriber network an option to settle transactions and provide remittances using FB’s own currency. Second improvement was that Libra will be pegged to a basket of currencies to check the high volatility in values as seen in previous cryptos. (More on Libra here).
Third wave was central bank digital currency. Post-debut of Bitcoin, most central banks ignored the currency. As multiple cryptos mushroomed and there were frauds, some governments became concerned and banned the currency in their countries. There was back and forth frictions between crypto players and governments, but eventually the latter prevailed, threatening with law and penalties. The cryptos stopped being currencies and were seen more as assets.
Niall Ferguson started his widely read book Ascent of Money as: “Bread, cash, dosh, dough, loot, lucre, moolah, readies, the wherewithal; call it what you like, money matters”. To paraphrase, “e-dollar, e-euro, e-renminbi, Bitcoin, ethereum, Libra, Saga, call it what you like, digital money matters” and winner of this race will shape humanity as earlier forms of money have done in the past.
Amol Agrawal is faculty at Ahmedabad University. Views are personal.