Cryptocurrencies as legal tender : threats and implications to the monetary system and banks

Abstract

Cryptocurrencies are seen as the newest financial innovation that has the potential to revolutionize how local and international financial systems operate, as well as how market participants interact. It is critical for economists, governments, central banks, and especially policymakers involved in economic strategy to grasp how this emergent technology works and analyse the potential implications or impacts on the financial world. The usage of cryptocurrencies has gained significant growth in the past few years. Users from different backgrounds and sectors of the economy have started investing, trading and making use of this technology. Nevertheless, their views on the purpose and usage of cryptocurrencies differ. The aim of this research is to examine if cryptocurrencies have the ability to replace or co-exist with fiat currencies by discussing if they can fulfil the basic functions of money. In addition, this document examines the risks and difficulties associated with cryptocurrencies and discusses how they may develop in the future. This research will also analyse if cryptocurrencies can eventually have a major influence on the central bank’s monopolies on the creation of money and how they might affect monetary policy decision making especially when a secondary currency class such as private cryptocurrencies has been created. An analysis is also made on the challenges that Central Banks might face from the increase use of cryptocurrencies as a medium of exchange and money transmission.