Crypto Currency

For centuries, money issued by governments has served as the lifeblood of the global economy — the currencies in which people hold savings, make payments and keep accounts, and in which nations measure their wealth and geopolitical power. But in our digital age, it’s facing a bizarre, postmodern sort of competition. Cryptocurrencies — created to supplant the traditional, sovereign kind — have become a widespread obsession, inspiring their own counterculture and attracting hundreds of billions of dollars in speculative investment that may or may not have anything to do with their viability.

How, if at all, should issuers of the world’s official currencies respond? In a word: carefully. As financial regulators, they need to strike a balance between encouraging innovation and preventing harm. Most important, as competitors in the global market for cash, they need to improve their products.

Money comes in various forms, none ideal. Notes and coin allow for easy face-to-face transactions and serve as a mostly stable store of purchasing power, but they’re costly to hold in significant amounts and no use for transactions at a distance. Bank deposits, along with the credit and debit cards connected to them, are more convenient but also flawed. They often entail hefty fees, and since (unlike fiat money) they aren’t a direct liability of the government, they involve an element of risk — relying on institutions that don’t always succeed in maintaining the public’s trust. The 2008 financial crisis took a lasting toll on confidence in the banking system — one reason holdings of physical currency have since increased.