OKEx Research Recommended Reading: IMF Digital Currency Working Paper (Part 1)

Original title: "OKEx Research Recommended Reading: IMF Digital Currency Working Paper (Part 1)"

Original source: okex research

Introduction

The International Monetary Fund (IMF) completed the article "Digital Currency for Cross-Border Payments: Macro-Financial Impact" on September 22, 2020. It focuses on four application scenarios of digital currency for cross-border payment, as well as specific analysis of these scenarios. Due to the length of the original working paper, we split it into three and published it separately. This article is the first of the original working paper.

Central bank digital currency (Central bank digital currency), referred to as CBDC, and global stable coin (Global stable coin), referred to as GSC, as a new form of digital currency, In terms of cross-border payment, it has the advantages of low transaction cost and faster speed, and has attracted extensive attention from the financial community. This article employs four hypothetical scenarios for CBDCs and GSCs to help illustrate their potential impact.

Scenario 1: Use cross-border payment in a small area;

Scenario 2: Use in some countries;

Scenario 3: Global use;

Scenario 4: Global adoption of multi-polarity.

This article is the first of this series of articles, and we will publish the second and third articles later, respectively, on the impact of these four scenarios on macro-finance and Policy implications are discussed. The IMF, as the International Monetary Fund, aims to propose new policies, explore solutions for change, or review existing policies and operations in the current process of accelerated digitalization. Based on the global financial market, it throws out the analysis of new concepts, which provides a very valuable reference for us to understand the concept and application scenarios of digital currency.

This article was translated by the assistant analysts Angela and Cici Chen of the Institute, and the chief analyst William was responsible for the review.

Summary

The rapid development of digital technology has expanded the prospect of adopting new forms of digital currency transactions at home and abroad. These include central bank digital currencies (CBDCs) and so-called global stablecoins (GSCs) proposed by large tech companies or platforms.

This paper explores the complex interplay between incentives for cross-border adoption and use of CBDCs and GSCs, and discusses potential macro-financial effects.

The use of international currencies reflects the economic weight of the issuing country, as well as broader geopolitical factors. Furthermore, the strong network effects and synergies between the three functions of money (unit of account, means of payment, and store of value) become self-reinforcing mechanisms: once money dominates, it tends to remain dominant.

Furthermore, the use of foreign currencies in domestic transactions ("currency substitution") depends on the degree of currency stability and the circumstances of other countries, including the legal framework and regulations etc.

Digitization, however, may drive the international use of currencies in different ways than traditional dynamics. CBDCs and GSCs hope to reduce transaction costs by expanding competition, increasing access to services, and advancing financial inclusion through mobile devices and the possibility of providing complementary services on global-scale social networking and e-commerce platforms.

Economic consequences and policy challenges depend largely on acceptance. Since the latter is difficult to predict, this paper proposes different stylized adoption scenarios to examine potential consequences.

These range from use in the case of small cross-border payments, to widespread adoption in some countries, to global adoption of a single GSC, or a few mainly based on CBDCs A multipolar world characterized by intense competition between GSCs and GSCs. The purpose of presenting scenarios is to illustrate and explore possible implications of adoption, not to predict specific outcomes or judge their desirability.

At the global level, monetary competition resulting from the adoption of CBDCs and GSCs could improve risk sharing in the long run.

Transnational adoption of digital currencies also presents risks and policy challenges. Foreign CBDCs and GSCs could increase currency substitution pressures and exacerbate vulnerabilities from currency mismatches, while potentially reducing the ability of local governments to implement monetary policy. Without appropriate safeguards, they can accelerate illicit flows and make it difficult for regulatory authorities to enforce controls such as foreign exchange restrictions and capital flows. In the case of GSCs, there are additional challenges associated with their governance.

In addition to domestic advantages, the cross-border use of CBDCs can also help businesses and households in the issuing country to better manage risks (for example, issuing national currency denominated debt). But if it intends to strengthen financial integration without a corresponding development of financial markets and financial institutions, the issuing country may be more vulnerable to global shocks.

In general, CBDCs did not qualitatively change the economic power of currency internationalization, but quantitatively strengthened currency substitution and currency internationalization the incentive mechanism behind it. GSCs that do not represent independent units of account are similar to CBDCs in terms of monetary effects, but may affect financial stability because they may suffer from rounds of crises of confidence. GSCs, representing new independent units of account, would likewise provide better financial services, but could have more fundamental implications for global monetary and financial stability.

The International Monetary Fund has universal membership and shoulders the mission of maintaining international monetary and financial stability. Therefore, the International Monetary Fund monitors and capacity development to take into account the macro-financial and policy implications of these developments.

Introduction

A. Overview

1. New forms of digital currency are increasingly attracting the attention of policymakers.

Among these are Central Bank Digital Currencies (CBDCs) currently envisioned by some countries, as well as so-called Global Stablecoins (GSCs). Potential motivations for introducing CBDCs and GSCs vary. Some see them as payment solutions that facilitate peer-to-peer or peer-to-business transactions, especially cross-border transactions, others see them as a complement to larger e-commerce ecosystems. More recently, in the wake of the COVID-19 crisis, governments are also exploring CBDCs as a quick and direct means of providing financial assistance to vulnerable groups, including the unbanked, during emergencies.

2. The digitization of money and payments has the potential to impact the international financial system.

Recently, the breakthrough and cost reduction of digital technologies such as cloud computing, as well as the popularity of mobile devices, have greatly increased the Accessibility of payment instruments used (e.g. central bank balance transfers in real time). At the same time, distributed ledger technologies (DLT) like blockchain make it possible to use digital tokens to transfer value on a peer-to-peer system without having to go through a central authority (for example, a merchant or central bank), which can be as simple as paying overseas. As easy as sending an email. As a result, the current international monetary landscape, based on banking systems linked across locations and time zones across the globe, may be reconfigured (Figure 1).

3. CBDCs and GSCs can reduce the cost of cross-border payments and make financial services more accessible to households and small businesses.

Based on a sample of 112 countries, the Bank for International Settlements (BIS) (2020, p. 84) reports that the average bank transfer of $200 across borders The total cost exceeds 10% of the remittance value. Remittances to developing countries surpassed $550 billion in 2019, surpassing foreign direct investment and portfolio flows. At the same time, in some developing countries, such as sub-Saharan Africa, North Africa and the Middle East, more than 50% of adults are unbanked (BIS, 2020, p. 72), leaving most people without access to Banking services, including cross-border payments. Much of the above costs are service fees and cost recovery for financial intermediaries. Thus, while it is difficult to quantify the benefits, CBDCs and GSCs clearly have the potential to significantly improve efficiency by flattening multi-tiered correspondent banking structures and shortening payment chains.

4. At the same time, foreign CBDCs and GSCs may make it more difficult for national authorities to implement an independent monetary policy and control domestic financial conditions.

By increasing the availability of foreign currencies for domestic use, CBDCs and GSCs may increase pressure for currency substitution and exacerbate currency mismatch risks. Without proper safeguards in place, they can facilitate illicit flows and make it difficult for supervisory authorities to enforce controls such as foreign exchange restrictions and capital movements. While the use of digital technologies in regulation and supervision (“RegTech” and “SupTech”) can enhance the ability of authorities to enforce compliance, their effectiveness still needs to be improved.

5. Acceptance of the size and scope of CBDC and GSC will be influenced by strong network effects, but will also depend on design features, national context, legal framework and regulations.

Digitalization has the potential to disrupt the existing balance of cross-border currency use. Some properties of these new forms of digital currency may drive adoption in ways that differ from existing dynamics. They reduce transaction costs by reducing reliance on banks, broaden access to services through mobile devices, promote financial inclusion, and open up the possibility of complementary services on a global scale in social networking and e-commerce platforms. Therefore, it is possible to envision various plausible outcomes of adoption and use. Furthermore, the rise of GSCs can be traced back to the era when the private sector played a major role in the monetary sphere, with big tech companies providing not only goods and services but also payment instruments that could influence monetary policy in many countries.

6. Policy makers will face the challenge of dealing with the cross-border use of digital currencies.

As a strategic response to CBDCs and GSCs issued by foreign central banks and large technology companies, central banks can issue their own CBDCs, but if the local monetary policy framework lacks credible To some extent, this does not necessarily help against currency substitution. Central banks may have to adjust the use of fiscal and macroprudential policies to better respond to shocks when monetary policy effectiveness is impaired. For a central bank that decides to issue CBDCs, doing so may also in some cases help internationalize its currency or achieve reserve currency status, but may complicate the implementation of its own monetary policy, as foreign use of its CBDCs may It will increase the volatility of capital flows. As new forms of digital money emerge, policymakers may be called upon to harmonize legal and regulatory frameworks governing data use and sharing, competition policy, consumer protection, digital identity, and other important policy issues related to the digital economy.

7. This paper explores stylized scenarios for the cross-border use of CBDCs and GSCs to illustrate and explore their possible implications.

This is not intended to predict specific outcomes or judge their desirability. Hypothetical scenarios range from use in the context of small cross-border payments, to widespread adoption in select countries, to global adoption of a single GSC, or a few multipolar worlds primarily characterized by intense competition between CBDCs and GSCs. Using these scenarios as a means of illustration, the analysis aims to shed light on the following questions: What is so special about these new forms of digital currency that could lead to a wide range of cross-border usage scenarios? What are the mechanisms by which cross-border adoption of CBDCs and GSCs could affect monetary policy transmission, financial stability, capital flows, and the demand and supply of international reserves? What potential policies could national authorities consider to balance efficiency gains and risks? Moreover, with monetary policy effectiveness impaired, how do other policies need to be adjusted to allow countries to respond to shocks?

8. This document provides an informal briefing to the Board on the relevance of cross-border digital currencies to international monetary and financial stability.

This is an initial attempt to address the complex interplay of incentives for cross-border adoption and use of CBDCs and GSCs and their macro-financial effects. Although this paper provides a preliminary analysis of the policy implications of this macro-financial effect, it does not make policy recommendations. Normative policy discussions require further welfare analysis and broader public debate. Overall, the paper finds that CBDCs do not qualitatively alter the economic forces that lead to currency internationalization because they are merely digital forms of existing fiat currencies, but quantitatively they can strengthen the incentives behind currency substitution and currency internationalization . GSCs that do not represent an independent unit of account are similar to CBDCs in terms of monetary effects, but may affect financial stability, as they may suffer from rounds of crises of confidence. GSCs, representing new independent units of account, could similarly provide better financial services, but pose a challenge to global governance, as the profit maximization purpose of GSC issuers may conflict with public policy objectives of maintaining monetary and financial stability.

B. What are CBDCs and GSCs?

1. CBDCs and GSCs are new forms of digital currency that embody the latest developments in digital technology.

CBDCs are a digital form of legal tender issued by central banks. For the purposes of this article, we will focus on a retail CBDC, defined as a widely accessible digital form of fiat money (Mancini-Griffoli et al., 2018; G30, 2020). GSCs are stablecoins, a private digital currency issued by large technology companies with the potential for widespread adoption (Figure 2). Stablecoins may differ from traditional e-money schemes in that they do not necessarily guarantee redemption at a predetermined par value within a unit of account. Although stablecoins are categorized here as a digital currency for convenience and illustrative purposes, it does not mean that they are officially considered “currency” or “money” by IMF staff. Legally appropriate definitions of currency and money are discussed in Box 1.

2. With the continuous advancement of digital technology, new digital currencies may be cheaper and faster than traditional electronic tools, especially cross-border payments.

CBDCs and GSCs do not incur expensive interchange or foreign transaction fees compared to credit cards, partly reflecting that they do not require multiple layers of clearing behind credit card transactions and billing infrastructure. Furthermore, they can be transferred in real time 24 hours a day through a peer-to-peer system, essentially bypassing correspondent banking relationships (Figure 1). He and others (2017) propose a simple analogy that can help understand the nature of these new forms of digital money. Before the Internet, sending a letter domestically was fundamentally different than sending a letter internationally. Prices vary significantly, infrastructure differs, and handling cross-border mail entails paying for shared international agreements, as well as packaging, tracking and handling standards. This still applies to current cross-border payments (CPMI, 2020; FSB, 2020b). In the age of the Internet, there is no difference between an email or a text message sent to a domestic or foreign recipient; both require a click. News is news; with the rise of CBDCs and GSCs, payments are in the future just about payments, whether the recipient is at home or abroad.

3. Private digital currencies differ in design and value stability, and their use has so far been limited.

We emphasize two main types. First-generation cryptoassets such as Bitcoin were denominated in their own units of account, and their prices fluctuated widely, making them poor stores of value. Stablecoins have become less volatile versions of traditional crypto assets. Stablecoins seek to back their issuance by pegging their valuation to fiat currencies or other existing assets, backing their issuance with assets (including assets denominated in official global currencies, either individually or as a basket), or through the use of algorithms to manage their unissued supply, to minimize price volatility. So far, neither cryptoassets nor stablecoins have reached the level of usage of cash or established cashless payment methods.

4. Large tech companies appear to be preparing to issue GSCs.

Individuals and companies increasingly rely on the platforms provided by big technology companies to connect with each other and exchange goods and services. These companies, benefiting from the network effect brought about by the huge number of users and the ability to bundle different products, may issue stablecoins with large-scale application potential. For example, Facebook and its partners have announced their intention to launch Libra, a blockchain-based digital currency fully backed by assets denominated in the reserve currency, and other big tech companies are likely to follow suit. Initially, large tech companies may choose to peg their GSCs to an existing fiat reserve currency to generate trust in the stability of their value. However, as adoption globalizes, GSCs may become decoupled from fiat currencies. They can become a separate unit of account, backed by nothing but the trust of the user, who can accept them as payment. An issuer can maintain its value by following a solid set of rules or principles (such as the volume and pace of issuance, the level of interest paid, or the fees charged), much as a central bank conducts monetary policy, although not necessarily with the same tools or target.

5. Central banks have yet to issue CBDCs, but many are seriously considering issuing them.

A recent BIS survey of central banks in 21 advanced economies and 45 emerging market economies (Boar and others, 2020) suggests that approximately 80% of central banks are engaged in CBDC-related work, and 40% of central banks have progressed from analytical research to experiments or proofs of concept. The motivations for issuing CBDC, which vary from country to country, mainly include: (I) providing alternatives to cash and ensuring that the public can use state-guaranteed payment methods; The cost of handling cash for countries; (III) promoting financial inclusion, especially for the unbanked; (IV) improving the efficiency and security of domestic, especially cross-border payments. The potential global adoption of stablecoins issued by major tech companies could also boost interest in CBDCs. Finally, in the wake of the COVID-19 pandemic, CBDCs are being considered as a means of rapidly disbursing government support to households and businesses, in addition to being a more hygienic and socially distance-compliant means of payment than cash (Auer, Cornelli, et al. Frost, 2020).

Adoption and usage scenarios

A. Factors influencing CBDC and GSC adoption

1. The cross-border use of currency is divided into two categories: the use of currency for international transactions and the use of domestic currency issued by foreign entities.

In the first category, international currencies serve as a medium of exchange, store of value and unit of account and are used for international trade, international finance and foreign exchange reserves (Figure 3) . In the second category, foreign currency substitutes for domestic currency for domestic transactions, a situation commonly referred to as currency substitution. Below we review the factors that drive currency use in international transactions and in currency substitution. Annex I describes the current situation and presents various indicators of currencies used internationally. Annex II provides typical facts on the degree, dynamics and persistence of currency substitution.

2. Security, liquidity, trade links, financial relationships and geopolitical factors explain why some currencies are used disproportionately in cross-border transactions.

Price stability and confidence in the value of the currency (both stemming from the credibility of the monetary authority) are crucial. Because these factors affect the role of money as a unit of account and store of value (Eichengreen and Mathieson, 2000; Hartmann and Issing, 2002). The more liquid and developed a country's financial market is, the more likely other countries will use its currency to intervene or denominate financial assets (Eichengreen, 1998). The larger a country's share of world output and trade, the more likely other countries will use that currency due to economies of scale (Eichengreen, 1998; Frenkel and Sondergaard, 1999; Frankel, 2000). The status of an international currency is also affected by the geopolitical relationship between the issuing country and the countries that adopt and use it (e.g., Eichengreen et al., 2019).

3. International currency use is subject to strong network effects or externalities reinforced by synergies between monetary functions Impact.

Network effects occur when the private value of using a service or product increases with the number of other users. Once a currency is established internationally, the fact that many people use it increases the likelihood that others will adopt it. Synergies between the different functions of an international currency may strengthen the network effects of adoption. For example, the dollar's status as the main international currency for trade invoices and payments increases the dollar's role in international finance, and vice versa. Therefore, from a dynamic perspective, once a currency is established as the dominant currency, it tends to be in a self-adjusting dominant position (He and Yu, 2016; Gopinath and Stein, 2018).

4. Currency substitution usually occurs against the backdrop of unsound domestic macroeconomic policies and lack of trust in policy institutions.

High and erratic inflation hampers the ability of national currencies to store value stably. The medium of exchange and unit of account function of the national currency is also limited in hyperinflationary situations, as households and firms aim to minimize their exposure to rapidly depreciating currencies and prefer to switch units of account to avoid constant revaluation. Set the price. Such inflationary events are often caused by the interaction of large macroeconomic pressures and weak policy regimes (such as large fiscal deficits and lack of central bank independence) (De Nicolo et al., 2005; Catao and Terrones, 2016; Kokenyne et al., 2010). Limited barriers to foreign exchange convertibility, government guarantees on foreign exchange-denominated debt, low foreign exchange transaction costs, and a lack of regulatory restrictions on foreign exchange exposure of banks and firms further increase the likelihood of currency substitution (Burnside et al., 2001; Broda and Levy Yeyati, 2006; Garcia-Escribano and Sosa, 2011).

5. In addition to the above factors, certain intrinsic properties of CBDC and GSC can also drive their adoption and use:

Reduce transaction costs. CBDCs and GSCs have the potential to reduce the cost of cross-border payments by eliminating intermediaries and potentially simplifying compliance procedures. They can help reduce transaction costs for securities issuance and trading through broader asset tokenization.

Easy to access. Obtaining foreign exchange can be a challenge, especially in rural areas of developing countries. Whether it is physical transactions or access through bank accounts, access to foreign exchange requires a physical infrastructure. CBDCs and GSCs have the potential to overcome these barriers. Also, especially if the issuer is a private company, an upfront investment can be made with the specific goal of reaching a wider user base.

Get supplementary services or bundles. Specifically, stablecoins are not just a new type of currency: they can provide access to a wider range of service platforms. The evolution of China’s payment system shows how e-money providers are bundling services to facilitate usage, as may be the case with stablecoins issued by big tech companies. WeChat Pay combines e-money transfers with its ubiquitous social media service, while Alipay connects its e-money with China's largest online retail site. In addition, both major e-money issuers offer credit facilities to their customers. In the future, large tech companies such as Facebook may follow a similar model by issuing stablecoins that bundle their existing social media and e-commerce services with payment services, respectively.

6. Legal provisions will seriously affect the use of CBDC and GSC.

While countries should not stifle innovation, they can set boundaries on the role of CBDCs and GSCs by changing their legal frameworks. Importantly, recipient countries can decide to what extent contracts are settled in foreign currency or in GSC denominations. In addition, the treatment of a foreign CBDC in a recipient country may depend on the legal treatment (e.g. currency and legal tender status) of that CBDC in the issuing country. Furthermore, when designing a CBDC, countries will need to decide whether to allow non-residents access to the systems that record CBDC and CBDC transfers. For a GSC to function as a means of payment in cross-border transactions, there must be legal certainty: this would require a degree of uniformity in the legal character of the GSC, making it a tool consistent with its payment function. In addition to describing GSCs, the rights of token holders and the status of issuers and intermediaries need to be clearly defined, and it is necessary to carefully examine private law issues that may affect the normal operation of GSCs (see Box 1). All other things being equal, a GSC that provides greater clarity and protects the rights of coin holders is likely to see greater adoption. The tax treatment of transactions involving GSCs must be substantially similar to equivalent transactions involving fiat currencies, including cross-border transactions.

20. The regulatory framework also plays a crucial role in shaping the scale and scope of CBDC and GSC usage. Currently, the regulatory environment in which new forms of digital currency operate is fragmented. This leaves open the possibility that in countries with foreign exchange restrictions, households and companies could choose to use CBDCs and GSCs, as they can help circumvent certain restrictions. At the same time, given the regulatory uncertainty surrounding the treatment of GSCs, and concerns over the ability to effectively supervise the full ecosystem involved in cross-border CBDCs or GSCs, regulators may make significant concessions to allow these institutions to operate within their jurisdictions , unless their financial stability implications and applicable regulatory framework are clearly stated (G7 Working Group, 2019).

B. Hypothetical Scenarios

This article gives some hypothetical scenarios for the adoption of CBDC and GSC (Figure 4), to help illustrate its potential macro-financial impact.

These scenarios were not chosen because they were possible or desirable; rather, they were designed as stylized examples to aid in the analysis of varying degrees of CBDC adoption and the macro-financial impact of GSC. These scenarios take into account various aspects: for what purposes (i.e., the function of the currency) CBDCs and GSCs are used, to what extent are they used in various countries, to what extent do they replace local currencies, and the type of issuer - public issue or not ( CBDC) or private (GSC), as this may require different preconditions and have different implications.

Scenario 1: Using a niche for cross-border payments.

Because of its low cost and inefficiency, or due to legal and regulatory restrictions on the purpose and amount of international transfers, CBDC or GSC are used as a medium for small transactions. Preferred means, such as cross-border remittances. A CBDC or GSC will not be held for long periods of time - in most cases during transactions and in some cases as a store of value. CBDC or GSC will be converted into local currency for domestic purchases, and CBDC or GSC will not replace the local unit of account.

The convenience and accessibility of CBDC and GSC make it a currency of exchange. For example, instead of opening bank accounts with foreign currency balances, CBDCs and GSCs would allow foreign residents to trade without bank accounts, which is difficult to obtain in many countries due to compliance requirements or other costs. Since they can be transferred on a 24-hour peer-to-peer system, their use simplifies multi-tiered counterparty banking structures, shortens payment chains, reduces transaction times, and promotes competition among service providers. As a result, cross-border payments could become cheaper and more inclusive, especially for small remittances.

Scenario 2: Some countries have higher currency substitution rates.

A foreign CBDC or GSC pegged to an existing fiat currency would lead to greater use of foreign currencies in countries with high inflation and volatility with unstable exchange rates. In these countries, CBDCs or GSCs are used very intensively and largely replace national currencies: as a store of value (per se or to acquire assets in that currency), as a means of payment for many but not all transactions (including some regional cross-border trade), As a common (but not necessarily ubiquitous) unit of account. Furthermore, even in countries with credible policy frameworks, the adoption of global service centers can be significant as they can facilitate transactions related to certain e-commerce or social networking platforms. Platforms may not be required to use GSC, but can be encouraged to use it through incentives (for example, if GSC is used, the price of goods and services on the platform will be lower).

Macroeconomic conditions and the degree of development of financial markets are critical to the adoption of CBDCs and GSCs. In countries struggling with less credible monetary policy regimes and a poor experience with price stability, the emergence of central settlement systems and global settlement systems may exacerbate currency substitution problems due to better accessibility. In this case, an increase in currency substitution does not necessarily lead to a decrease in welfare. Gulde and others (2004, p. 4) note that "in comparing the financial vulnerabilities of dollarized and dedollarized regimes, it is important to state that dollarization itself has largely .” Countries with less developed payment systems may see greater adoption of foreign CBDCs and GSCs as a way to leapfrog better payment and settlement services, even for local transactions.

Scenario 3: Global adoption.

A single GSC is commonly adopted in many countries and replaces local currencies as a store of value, means of payment, and unit of account; it is also widely used in international transactions. A GSC is an independent unit of account used as a means of payment on e-commerce and/or social platforms across multiple countries, and its value can be maintained through the issuer's commitment to a credible set of rules or principles. For example, it could create "price stabilization rules" for the basket of products sold on the big tech company's platform.

This could be the case if a large global high-tech platform decides to launch a GSC for its large customer base spread across the world. In this case, adoption will be driven by network externalities related to the large existing customer base and synergies between the token and other goods and services offered by the platform. Such GSCs could initially be issued against assets denominated in existing reserve currencies. Given the large customer base of the big tech platforms, GSCs could see rapid global adoption. A payment tool launched specifically for its customer network will help strengthen its business model. As GSCs gain popularity, network effects will take over: agents will start invoicing contracts in GSCs, and financial intermediaries will start collecting deposits and lending via GSC-denominated contracts. At some stage, once adoption reaches a certain critical level, the peg to an existing reserve currency may no longer be necessary to generate trust in the value of GSC, and GSC can become legal tender.

Scenario 4: Global adoption of multipolarity.

This is a competitive scenario between several major CBDCs and GSCs representing independent accounting units. Unlike a single GSC that is primarily used for international transactions and payments, and for domestic use worldwide (as described in Scenario 3), some CBDCs and GSCs are used internationally for both domestic and international transactions. In the case of CBDCs, there may be "currency blocs" in which countries choose a common CBDC for international and domestic transactions. For GSCs, there may be "digital currency regions", where the use of stablecoins is not determined by geographic boundaries, but by the boundaries of the e-commerce and/or social platforms that use it. Such a digital currency area can be defined as a network in which digital payments and transactions take place through the use of a currency specific to that network. In other words, either the network operates with payment instruments that can only be used between internal participants; and/or the network uses its own denomination, different from the existing official currency (Brunnermeier and others, 2019c). A third scenario is that there may be monetary competition between a small number of major CBDCs and GSCs.

This situation may be The result of the strategic responses of central banks and large technology companies in the game of currency competition in the digital age. Central banks of major reserve currencies are expected to issue CBDCs or global leading large technology companies to issue GSCs, and other central banks and large technology companies may also launch their own CBDCs and/or GSCs. Through interoperability, users of a particular technology or system can easily interact with users of other technologies or systems, greatly reducing exchange costs. The first-mover advantage and the persistence of established standards of dominance may no longer be so strong. In this line of thinking, the rise of CBDCs and GSCs may prove to be a shock that accelerates the transition to a multipolar world of reserve currencies. Indeed, several major currencies appear to have played important international roles simultaneously during certain historical periods (Eichengreen and Flandreau, 2009; Eichengreen, Mehl, and Chitu, 2018).

This article is from a contribution and does not represent the opinion of Rhythm BlockBeats

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