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A Note on Digital Currencies & How Consumer Expectations Stand Against Regulation Challenges

Artwork by Milad Fakurian


Money is both the bane of our existence and the object of all our desires, a bold statement, yet one might be all the more inclined to believe it to be truer and more apparent than the light of day. Heck, even the Wise King Solomon said that “money answereth all things”.

The world appears to be shifting away from the novelty of Bitcoin, which most people still grapple with, to this notion of Central Bank Digital Currencies (CBDCs). More than 80% of Central Banks are thinking of launching CBDCs, or have already done so. Even so, anyone attempting to grasp Bitcoin, not to mention, CBDCs, must first answer the question, “What is money”? Money has evolved through millennia as a human-made mechanism to solve the problem of transferring purchasing power across time and distance.

Money as Cultural Technology

As tricky as it may be to comprehend, money is subject to the same pressures as any other technology; money is species in the Seventh Kingdom of Life that is technology, otherwise known as the Technium. It isn’t, and never has been, immune to competition, preference shifts, or obsolescence. Indeed, it can never escape the clutches of the thesis-antithesis-synthesis of history. The history of money has been a never-ending hunt for an instrument that allows “today’s wealth to be consumed tomorrow,”, particularly in the macrocosmic and microcosmic interplay of the Chthulucene and Capitalocene. As such, money must perform three duties in order to do this, viz: 

It Stores Value

Money’s value should not depreciate over time. Whether due to biological decay or an unrestrained supply that allows it to be debased, a currency that rots will eventually collapse under the weight of time. A bushel of oranges is only worth something if unspoiled.

Unit of Measurement

Like degrees, inches, and pounds, money is a unit of measurement. Any measurement that is to be valid must be standardised. The measurement must also be consistent through time (stable purchasing power) and space (frictionless movement and settlement).

Medium of Exchange

For a variety of reasons, currencies might fail as a medium of trade. It’s impossible to agree on prices if the currency isn’t a good store of value or an acceptable unit of account. Portability, therefore, factors into the equation. What good would money be if others wouldn’t accept it as payment?

With these purposes in mind, it’s worth pausing to imagine what the world was like 40,000 years ago when money was invented.

A Brief History of Money: Barter

Barter was used to conduct trade before the invention of money. The exchange of products or services for other goods or services is known as bartering. Although it appears to be simple, barter is extremely difficult to master.

The problem with barter is that it requires a double confluence of desires to work. That is to say, for both parties, if a farmer wants bread and a baker wants oranges, the farmer must first locate a sugar dealer before receiving the apples.

There is a slew of other challenges and the difficulty in locating willing trading partners. One must consider the price difference between a barter system and a monetised economy. With each extra unit of trade, costs increase dramatically. In a barter economy with only oranges, sugar, and bread as items, nine prices are required versus only three in a cash economy. As a barter economy expands in size, the magnitude of trade gets more complicated.

The Advent of Money

Due to the complicatedness of barter, among other reasons, people all around the globe independently adopted the idea of the technology that is money. However, what different groups of people used as currency, on the other hand, was distinctive. For instance, the Clamshells of North America, the famous cowrie shells of West Africa, cacao beans of the Aztec empire, the Indian rupya, et cetera. Fundamentally, people make money decisions based on six attributes, whether they are aware of it or otherwise. Thus, when a material good or service possesses more of the traits, the better it will be able to fulfill the three functions of money outlined before. Nevertheless, the capacity of a possible monetary source to meet these requirements may shift through time. That is to say, what is smart money today may be a bad investment tomorrow.

The Six Properties of Money

The six properties of money are as follows:


Produce is a poor investment since it degrades quickly. On the other hand, Gold is impervious to corrosion and other forms of deterioration.


The rule of supply and demand applies to currencies as well. The easier something is to locate or manufacture, the less scarce/valuable it is considered.


Cash is convenient to carry, but transporting significant sums of gold can be physically demanding. It’s difficult to trade when you have to use a wheelbarrow merely to pay your bills.


For modest purchases, US dollars can be broken down into cents.


A dollar is a dollar, but the quality and amount of apples in one barrel may differ greatly from another barrel. Every transaction must be audited if a currency isn’t fungible.


Acceptability can be compared to the network effect of money. The more the first five requirements are met, the more inclined people are to use money: the more people use said money, the more convenient it becomes to spend.

The favourable influence on financial inclusion has shaped the emergence of mobile money and e-money as a subset of digital currencies. Without question, there are regulatory problems associated with mobile financial services companies’ near-monopolies and the ramifications for traditional commercial banking and consumer protection. Moreover, regulatory deficiencies and hazards associated with e-money, such as the market domination of BigFintech (BFT) corporations selling e-money, have foundational consequences.

Initiatives for global stablecoins have brought attention to flaws in financial inclusion and cross-border payments and remittances in emerging markets and developing nations (EMDEs). Stablecoin projects, on the other hand, are not a panacea. While they may gain traction in some EMDEs, they may also pose unique development, macroeconomic, and cross-border issues for these nations, and they have not been thoroughly tested. Several EMDE governments are examining the costs and benefits of digital currencies issued by central banks (CBDCs). The difference between token-based and account-based money, we believe, is less critical than the divide between the central bank and non-central bank money.

Regardless of whether a sovereign central bank issues them, a private sector entity, or a community, digital currencies are both a payment system innovation and a type of virtual money.  The introduction of a ‘distributed ledger,’ which allows a currency to be used in a decentralized payment system and applied to a variety of other distributed data systems, with applications ranging from transaction monitoring to certification, is the key innovation behind DLT-based digital currency. For example, the XRP Ledger, built explicitly for payments, has shown stability over the years in altering the rudimentary aspects of our interactions with the idea of money and has shown a great deal of stability over the years. A robust payment infrastructure enables the frictionless movement of value at a cost-benefit to the end-user. 

From a macroeconomic perspective, if digital currencies are widely adopted, they are likely to have a proportionally higher impact on the unbanked in developing nations and other countries with larger unbanked populations.

In light of these issues, a risk-based regulatory approach is proposed, focusing on financial market outcomes mainly related to global and local financial stability and broader sustainable development outcomes and maintaining macroeconomic authority in implementing jurisdictions. While globally interconnected financial systems are considered a beneficial outcome of the global digital revolution, markets that use these solutions must be capable of adequately protecting both consumers and economies from unintended externalities.

Consumer Expectations

Consumer behavior is evolving as a result of technological advancements. They expect platforms to be mobile-first and entirely digital in the future. Stablecoins have a greater chance of becoming systemically crucial in a “host” jurisdiction, even if they aren’t in a “home” jurisdiction. Consequently, authorities may struggle to control the larger stable coin structure and its actions, including citizens. Thus, it could lead to a conflict of interest between “home” and “host” supervisors, obstructing overall control. It is similar to the issues faced by financial institutions’ supervisory institutes and crisis management groups in small economies.

For instance, if deployed at a large scale in the United States, this could obstruct risk management and effective payment oversight required by international standards to avoid unlawful use and support financial stability. It also expresses concern about consumer protection and recourse systems.

The following insights about stablecoins are derived from initial impressions of the regulatory gaps extant relative to consumer expectations of digital currencies:

• The necessity for an internationally recognised taxonomy and rules for legal and regulatory structures to detect and address regulatory loopholes and the possibility of international arbitration, given these digital currencies such as stablecoins may fall under multiple regulatory categories.

• The requirement to evaluate coordination mechanisms in order to implement a complete and consistent regulatory and supervisory strategy throughout a fragmented environment.

• The requirement for data and information sharing for regulators to obtain a comprehensive picture and assess if collaborative arrangements are acceptable.

Appropriate policies can alleviate or mitigate many of these issues. There are possibilities for extra resources for AML/CFT oversight, legislation to minimise currency imbalances, and increased international coordination. Risks can also be addressed using existing frameworks such as the Principles for Financial Market Infrastructures (PFMI).


The existing fiat monetary system has reached a critical point in its evolution. The breakdown of the old financial structures signaled the beginning of a new age of unrestrained central banks with the ability to generate money at the spur of a moment. This has paved the way for the next step in monetary technology, which we believe will be realized through the use of digital currencies. 

The purpose of central banks is to maintain the monetary system’s stability. That is, to safeguard the value of money and ensure the seamless operation of the payment system, which is how we send money. While we’ve witnessed eruptions of monetary innovation in the past, this time feels different. Entrepreneurs are attempting to transform not simply the way we pay, but also money itself, through innovation. Cryptocurrencies have evolved from digital novelty to trillion-dollar technologies with the potential to disrupt the global monetary system and the ramifications in the actual world are enormous.

Jack Dunam
Jack Dunam