Introduction

• Author: Efrem Castelnuovo
• Published date: 01 December 2018
• Date: 01 December 2018
• DOI: http://doi.org/10.1111/1467-8462.12305

Policy Forum: Cryptocurrencies

Introduction

Efrem Castelnuovo*

This issue of the policy forum focuses on

cryptocurrencies. As a monetary economist,

I am interested in understanding money. While

I am used to thinking of public money, that is,

money issued by a public institution as a central

bank, private money is no less interesting to

me; a reality as Bitcoin has indeed forced

macroeconomists to ask many questions

related to the coexistence, consequence and

optimality of public and private money. The

readers of this issue and I are very lucky to be

presented with very insightful discussions on

public and private money.

The issue opens with a piece by Jes

us

Fern

andez-Villaverde, one of the most inf‌luen-

tial economists of his generation. His article

teaches us a great deal. In the f‌irst place, it

teaches us why money is different from

bananas: because the market for the latter

typically works well in equating demand and

supply at an eff‌icient level. Unlike a competi-

tive market for real goods, the private money

market does not provide the socially optimal

quantity of money because of the trading

frictions which support the very existence

of money itself. Intriguingly, Fern

andez-

Villaverde explains this by taking us on an

intellectually stimulating tour which reminds

us why money is memory; the importance of

understanding how to organise such memory;

the difference between US or Australian

dollars (which are government bonds, after

all) and f‌iat money; the fact that f‌iat money is

necessarily a bubble; and the role that this

bubble can play for society. A very useful

policy implication is provided: the competition

between public and private money can play

a role in disciplining central banks into

providing better government-run f‌iduciary

monies. Not all bubbles are bad after all!

In the second article Robert Kirkby offers an

interesting set of facts regarding the volatility

of a set of cryptocurrencies as opposed to that

of f‌iat money such as the US dollar, the

Argentinean peso and the Venezuelan bolivar.

1

These facts point to the pretty high volatility of

cryptocurrencies with respect to reference

currencies such as the US dollar, something

which could easily lead us to classify Bitcoins

and other cryptocurrencies as speculative

investment. However, countries that are politi-

cally unstable, and often associated with

extreme swings in the relative value of their

currencies with respect to the US dollar, could

theoretically see cryptocurrencies emerge as

credible alternative means of transaction. This

goes back to Fern

andez-Villaverde’s conclu-

sions on the role of cryptocurrencies as

disciplining devices which may force central

banks to provide better government-run f‌idu-

ciary monies. Kirkby’s analysis also predicts

that, with transactions going increasingly

digital in a number of countries, a digital f‌iat

currency could at some point become reality,

possibly in co-existence with cash.

Donato Masciandaro’s article explores

exactly to what extent a demand for a digital

f‌iat currency could exist. Typically, the reasons

behind money demand, according to the

tradition established by Baumol and Friedman,

are money’s relevance as a medium of

exchange and as a store of value. Interestingly,

Masciandaro considers a third factor: money as

a store of information. If money is a dissemi-

nator of information, agents in the economy

consider risks related to their privacy when

* Melbourne Institute and Department of Economics, The

University of Melbourne, Victoria 3010 Australia; email

<efrem.castelnuova@unimelb.edu.au>.

The Australian Economic Review, vol. 51, no. 4, pp. 512–513 DOI: 10.1111/1467-8462.12305

°

C2018 The University of Melbourne, Melbourne Institute: Applied Economic & Social Research,

Faculty of Business and Economics

Published by John Wiley & Sons Australia, Ltd