The Future Monetary System

This chapter deals with the monetary system as the institutional framework governed by central banks. Central banks provide a public good that no private blockchain can rival. Institutional economics and historical perspectives are natural complements of the theoretical principle of “no questions asked” in framing the problem of the way monetary innovations should be made to fit the existing landscape. In particular, the principle shapes a fundamental tradeoff that impinges on the issuers of stablecoins and, virtually, on any financial intermediary. We sketch the prospect for the future monetary system depicted by the Bank for International Settlements. The Libra/Diem case study is given due emphasis. Stablecoins are given a clear characterization; in particular, it is discussed in which sense there is much more to stablecoins than problems of proper collateralization. The inherent hierarchy of account-based money is the proper setting for tackling these issues. Then, the subtle case for central bank digital currency is thoroughly discussed.