A paper drafted by researchers from the Bank of Korea and Seoul’s Hongik University seeks to identify factors that could drive the use of a blockchain-based currency over a government-issued one.
According to the authors, there is likely to be a symbiotic relationship between both economies should digital currencies become more widely used. They speculate that when the cost of using one currency rises, the other is likely to fall, thereby increasing the attractiveness of the other option.
They believe costs will keep the systems in balance.
The authors write:
“High costs of using fiat currency increase the demand for digital currency. Similarly, high costs of using digital currency relative to fiat currency raise the demand for fiat currency. In a world of imperfect currencies with uncertain costs associated with the use of a currency, it is unlikely that the relative costs of using digital currency will be low enough to drive out and accordingly crowd out fiat currency entirely.”
The research aligns with the trend among central banks investigating the deployment of digital currencies, both by the institutions themselves as well as other groups or organizations.
The authors put forward the notion that their research could give financial regulators greater insights into these dynamics as such systems become more prevalent.
“The result of our paper can be useful to policymakers and regulators who want to have insights in the new monetary system where a privately issued digital currency coexists with a central bank issued fiat currency,” the authors write.