Antonio’s chapter offers a rich overview of the dramatic changes in the world of money and banking that we have seen in recent years. I focus on two themes: the nature of money and how it relates to these developments, and the government’s response to the structural changes we observe.
I discuss the price of money, its fundamental value, store-of-value bubble, and liquidity bubble components; the opaque legal tender concept and the absurd situation that governments outlaw the use of government money (contrary to what some theories would imply); the role of trust in a world without cash; and the substitution of money by smart contracts tied to a database.
And I comment on the many facets of digitalization; the time lag between the origination of new business models and regulatory catch-up; and on central bank digital currency as a key element of structural change in the financial system.
Finance has been digital for decades. And both technology and preferences are only changing gradually. So, what triggers the abrupt changes in business models that we currently observe?
The interaction between industry on the one hand and legislators and regulators on the other has changed. New entrants exploit synergies across areas that have so far been regulated by independent authorities, or not at all. While entrants think and act outside the box, regulators and legislators have not yet been able to catch up.
Digital finance poses new challenges, including for financial stability, national security, and consumer protection (digital literacy).