Author ORCID Identifier
Benjamin Geva: 0000-0003-0169-2750
Document Type
Article
Publication Date
12-2023
Source Publication
Banking & Finance Law Review, vol. 40, no. 1, 2024, pp. 115-141.
Keywords
Cryptography; Central bank digital currencies; Blockchain; Currency; Digitization; Algorithms; Distributed ledger; Central banks; Protocol; Commodities
Abstract
Whether tokens are transferable peer to peer or via third party intermediation, through automation, tokenization could deliver gains by greatly speeding up settlement and increase efficiency by ensuring all parts of a transaction occur simultaneously, in what is called atomic settlement. This article addresses only the first model, that of the digital bearer instrument transmitted from a payer to a payee typically in a discharge of a debt. [...]a digital currency transferable under a decentralized protocol - such as (but not only) over a distributed ledger and yet issued centrally - is considered to operate in a "hybrid" scheme. The Office of the Superintendent of Financial Institutions (OSFI) in Canada defines "cryptocurrencies" to be "digital assets that depend primarily on cryptography and distributed ledger or similar technology. [...]virtual currencies" are privately issued digital currencies. They are contrasted with CBDCs which are obligations of the central bank. A virtual currency may have its own unit of account, fluctuating by reference to the value of an official unit of account, in which case it is selfanchored, which is in fact unanchored to any unit of fiat currency or commodity. Alternatively, a virtual currency may be a "claim-check" or stablecoin that is denominated in, namely pegged to, or claimed at par with, either an official currency's unit of account (as well as a basket of such currencies) or in the value of a specified amount of a designated commodity, whether or not it is backed by a reserve of such currency or commodity. Since prices of goods and services are typically denominated in an official currency, particularly (if not only) "claim-checks" or stablecoins denominated in that currency are good candidates to become private money to be used in retail transactions. They are currently already used in crypto-asset transactions (including crypto lending). Otherwise, their use is particularly efficient in crossborder payments (including remittances) and, as long as central banks do not issue digital coins of their own, are good substitute to cash also in domestic transactions. As their use reduces the need for intermediation it lowers transaction costs and provides streamlined settlement.
Repository Citation
Geva, Benjamin and Muraj, Mohammed, "The Digitization of Money: Stablecoins and CBDC" (2023). Articles & Book Chapters. 3141.
https://digitalcommons.osgoode.yorku.ca/scholarly_works/3141