Cryptocurrencies have become enormously popular, triggering a public debate about if and how they should be regulated. Although these private payment instruments are new, we can use standard monetary theory to make sense of them. This article explores the problems created by both traditional and digital monies, and the solutions that have been adopted through years of trial and error. Even if cryptocurrencies are destined to play an important role in a new, all-digital monetary system, this transition will inevitably be slow and bumpy, requiring both experimentation and prudence.

This article appeared in the Second Quarter 2023 issue of Economic Insights. Download and read the full issue.

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