Complementing Money Functions: Central Bank Digital Currencies and Currency Competition

Abstract

Central bank digital currencies (CBDCs) are currently one of the most vital issues in monetary policy worldwide. While several aspects of the emergence of digital currencies have been addressed in the respective literature, little focus has been directed to one important underlying parameter: the new role of technology in the digital age, which complements the traditional money functions and hence may exert an effect on currency competition. In this paper, we first provide an overview of money functions, currency competition and digital money. We then state that with the emergence of CBDCs, technology has become a new and important functional parameter born by the CBDC itself. We conclude that while technological competition has arisen as a factor of currency competition, stability remains its most decisive factor.