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Money in the twenty-first century

Marcelo M. Prates – Central Bank of Brazil and columnist for CoinDesk


-- Not long ago, money was simple, central banks were all but invisible, and banks seemed like an inevitable nuisance. Money consisted of the coins and notes carried in wallets or the checkbook in the desk drawer. Central banks were poorly understood institutions entrusted with the mystical power to print money. And banks were associated with the agony of waiting in line to cash a check or having awkward conversations with the loan officer when credit was needed.


While this world had been slowly disappearing for some time, the 2008 Global Financial Crisis sounded its death knell. Money now takes many forms, from plastic cards and digital wallets to cryptocurrencies and stablecoins. Central banks were accused of becoming market saviors, with little regard for the sufferings of the ordinary person. And banks emerged as complex and unstable institutions that privatize profits and socialize losses, to the despair of taxpayers.


The Crisis exposed the weaknesses of governments, central banks, and regulators to promote stability and avoid financial folly, exacerbating political tensions and social unrest. The coronavirus pandemic only worsened the generally negative sentiment, highlighting the failings of the existing financial infrastructure. As one example, the U.S. Treasury had to send relief money to many households facing hardship by mailing paper checks that took weeks, if not months, to arrive.


At this point, some structural reform of the monetary and financial systems seems not only desirable but inevitable. The march of technology and the growing dissatisfaction with established institutions are just speeding things up. It is against this backdrop that my new article, Money in the Twenty-First Century: From Rusty Coins to Digital Currencies, delves into the fast-changing reality of money, offering a guide to its recent evolution and possible future.


The technology now available can enable a monetary transformation that would dramatically change the lives of governments, central banks, financial institutions, and regular people. From the privatization and decentralization of money to central-bank digital currencies (CBDCs), options abound. More than that, with many private players entering the monetary game, like creative start-ups or ambitious big tech firms, the interest in transforming money is now widespread. Among all these possibilities, what type of money will prevail?


We have to first acknowledge that, in the increasingly digital world, not having access to digital money means not being a full citizen. If, therefore, central banks do not offer a stable and inexpensive public option for digital money and payments, many persons and small businesses that cannot afford the private alternatives could be deprived of an essential service in the modern economy. A CBDC will not promote financial inclusion by itself, but it can offer the option of digital money for all.


Among the private options, a digital currency issued by one of the big tech companies could rapidly become dominant. These companies can take advantage of their extensive user base and geographical dispersion to create a currency that would facilitate not only local transactions but also cross-border payments. Despite all the troubles with Libra-Diem, we should not overlook that, with a 2.4 billion user base, Facebook can eventually offer a digital currency to more than 1/3 of the world’s population.


In the end, no matter how fanciful the monetary alternatives look, finding the money of choice comes down to answering an old question: Who do you trust the most to take care of your money?

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