The Evolution of Currency: Cash to Cryptos to Sovereign Digital Currencies

Abstract

In 2009, Bitcoin created a world-first decentralised alternative currency that has spawned over 1,700 imitations by private parties. In 2018, governments finally joined the race, as Venezuela issued a world-first sovereign digital currency. Major economies like Canada, China, Singapore and the UK are all developing their own versions. These new versions differ significantly from Bitcoin and among themselves, creating the potential to flood the global financial system with a myriad of new digital currencies. Existing taxonomies of currency struggle with the speed of change (frequently due to inadequate understanding of the underlying technology) and, as a result, remain incomplete and filled with confusing and conflicting vocabulary (with terms like ‘virtual currencies’, ‘digital currencies’, ‘cryptocurrencies’ frequently being used to refer to the same thing). This article resolves this problem. First, it analyses existing forms of currency based on their functional characteristics and provides a comprehensive taxonomy. Second, it integrates the likely forms of upcoming sovereign digital currencies into this taxonomy and outlines the corresponding challenges. At the moment, no major economy seems keen to issue a sovereign digital currency, but if one does, others will, for good reasons, respond in kind and the ground will be laid for a sovereign digital currency battle royale.