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Technological Change and the Future of Cash

Author(s): Fran├žois R. Velde

Date published: Aug 2017

SUERF Policy Note, Issue No 15
François R. Velde, Federal Reserve Bank of Chicago

Information technology (IT) is having a growing impact on the financial industry. In some ways this is not new: computing power has been harnessed by banks and other financial intermediaries for decades. But now it is IT’s ability to process information (the “I” part of IT) that is opening new avenues. Indeed, finance to a large extent is a matter of information, or lack thereof. In a frictionless world with no informational asymmet-ries and perfect record-keeping there is no place for financial intermediation. Now that increasing numbers of transactions are taking place in a realm (the Internet) where information can be acquired and exploited in novel ways, financial intermediation will be transformed.
This essay focuses on one early development, namely distributed ledger technology (DLT), starting from its use in creating a money-like asset, Bitcoin. I first briefly review the past of money, using the insights we can gain from this new technology into the nature of money. I then turn to DLT, exploring its basic features, asking what promise it really holds. I conclude with some thoughts on how central banks may have to react to these developments.

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SUERF Policy Note, Issue No 15SUERF Policy Note, Issue No 15

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