Making sense of cryptocurrencies
Prof Antonio Fatas who teaches Economics at INSEAD and his co-author Beatrice Weder di Mauro have penned a wonderful article on VOX. They argue that economists do not view cryptocurrencies as having the power to disrupt finance.
It’s only enthusiasts and fintech entrepreneurs who believe that the new currency is causing a revolution in the world of finance.
Economics 101 states that money plays 3 important roles: a) store of value b) a unit of account and c) medium of exchange.
The writers argue that;
“In countries where traditional bank accounts were not ubiquitous but mobile phones were, we witnessed innovation in the form of money consisting on balances stored with a telecom company (e.g. MPESA in Kenya). The unit of account remained the traditional currency, defined by a central bank, but money was now being redefined by the availability and simplicity of the payment technology, the mobile phone. The ‘traditional intermediary’ has been replaced by a ‘tech intermediary’. They are not disrupting the currency but they are disrupting the traditional form of money (through bank intermediaries) and potentially the way we think about monetary policy and its transmission.”
“Regulators across the world are taking a closer look at the issuance of cryptocurrencies and some have moved to prohibit or curtail them.”
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