Evolution of Money in the Digital Age

Abstract: This paper builds on the proposal of the Dutch citizens’ initiativefor monetary reform “Ons Geld”.“Ons Geld” advocates the disentanglement of public and private matters in money and banking by separating money and credit. Taking carefor the money supply is considered a public matter. Credit is considered a private affair, as it stems from agreement between contracting parties. The separation of money and credit is achieved by replacing bank deposits as the prevalent means of payment with state issued Digital Cash, combined with the dismantling of all government support for means of payment that are not issued by the state itself. In the process interbank clearing is phased out as the prevalent core of the payment infrastructure, and replaced by a digital payment system, based on a public Digital Cash System, in which money is directly transferred from payer to payee, without involvement of any bank balance sheet. This paper puts the “OnsGeld”proposal in context and explores the characteristics of the proposedpublic Digital Cash System,and the migration of the current payment system based on bank deposits to state issued Digital Cash. This migration is primarily driven by demand for Digital Cash as a substitute for bank deposits, which is free of credit risks and free of interest, both negative and positive. Access to Digital Cash Accounts is provided by payment service providers such as banks, as a front-end-service under public supervision.Migration to a public Digital Cash System changes monetary policy radically and implies the introduction of new monetary instruments and requires adaptation ofthe regulatory regime. Credit markets become liberalized as interest rates are no longer centrally managed, and become fully subject to market forces in which supply and demand of money for lending, and the risks involved are reflected. The money supply, in the form of state issued Digital Cash, becomes tightly controlled and directly managed by a separate (4th) power of government; the Monetary Authority. In this Digital Cash System money is essentially information, with no backing other than the power ofcentral government, strengthened by transparency, democratic control and institutional oversight. This requires specific (statutory) principles that govern the monetary power to ensure a sound and stable monetary system serving society at large, enabling it to flourish to its full potential.