Debates about the end of fiat currencies are gaining momentum. At a time when digital currencies, cryptocurrencies and decentralised financial systems are gaining popularity, more and more experts are questioning whether the current system based on paper money and state control has a future. At the same time, it appears that technological developments come in certain cycles that could indicate major changes in the global financial system.
Technological cycles and change in the monetary system
History shows that major technological innovations come around every 300 years or so, leading to fundamental changes in the economy and society. From the Industrial Revolution to the Internet era, it has been clear that new technologies can rewrite established economic orders. Now it seems we are on the cusp of another revolution – the advent of digital currencies and blockchain technologies could gradually replace fiat money, which has been in use in its current form since the 20th century. Central banks around the world are already exploring the possibility of introducing digital currencies, which could be the first step towards a transition to a new system.
While cryptocurrencies like Bitcoin were originally conceived as an alternative to traditional fiat currencies, they are now seen more as an investment asset. However, digital currencies issued by central banks (CBDCs) may become the real challenge to the current system. These would offer the advantages of cryptocurrencies, such as speed and efficiency, but would also allow the state to maintain some control over the financial system. Opponents of this move, however, warn that CBDCs could threaten people’s financial privacy and strengthen governments’ influence over personal finances.
Cryptocurrencies versus central bank digital currencies
Greater upheaval may occur if traditional banks are unable to respond quickly enough to technological change. In this case, they could lose their position as the main intermediaries in the economy, leading to further structural changes in the functioning of the global financial system.
Although fiat currencies are unlikely to disappear overnight, current developments suggest that their importance may gradually diminish. The future will show whether technology such as blockchain will bring about the end of paper money or whether central banks will find a way to modernise the system and maintain control. One thing is certain – the world of money is entering a new phase that will require rapid adaptation not only by institutions but also by ordinary users.
