‘Bitcoin and Fiat Currency Can Coexist,’ according to South Korean’s central bank. South Korean central bank has put out a paper on cryptocurrencies comparing them to traditional fiat currencies
The paper is called “Crowding out in a Dual Currency Regime,” and is written by Kihoon Hong, Kyounghoon Park, and Jongmin Yu.
“The rise of cryptocurrencies could have a significant impact on our monetary system as they are privately issued currencies, thus not regulated by central banks,” say the paper’s authors. One such cryptocurrency is bitcoin.
High costs of using fiat currency increase the demand for digital currency. Similarly, high costs of using digital currency relative to fiat currency raise the demand for fiat currency. In a world of imperfect currencies with uncertain costs associated with the use of a currency, it is unlikely that the relative costs of using digital currency will be low enough to drive out and accordingly crowd out fiat currency entirely.
Results should allow “the co-existence of both currencies.” South Korea has the fifth-highest bitcoin trading volume and the Korean Financial Services Commission (FSC) may soon regulate bitcoin.
The government is interested in cryptocurrencies and the paper is aimed at helping officials comprehend the new technology.