Which Digital Currency is Best Fit for Purpose?

Abstract

This paper is based on a public submission to the Australian Senate Committee “Inquiry into Digital Currency” announced on October 2, 2014. The committee is to report to Parliament in March 2015. A framework is established that identifies ten reasons why digital Australian dollars are not fit for purpose as a medium of exchange and unit of account/value. To provide a reference unit of value to compare Bitcoins and the other types of crypto and digital currencies, a hypothetical negative interest-rate tethered currency described as $Z is introduced. Twenty benefits of accepting $Z are identified to support their introduction as a supplementary official currency and a more attractive alternative to Bitcoins in the event of another financial crisis. The paper recommends that regulators accept $Z like currencies and for the government to establish the technology to collect taxes and issue $Z like money through mobile phones to finance welfare and infrastructure without increasing debt or taxes.

Keywords: Bitcoins, Cell phone money, Digital Money, Negative Interest, Tethered currency

JEL Classification: D39, D46, E49, E52, G01, N22, N24