Digital currencies could impact the nature of currency competition, the architecture of the international monetary system, and the role of government-issued money, a study from the Bank for International Settlements (BIS) has found.

The research reveals that digital currencies will unbundle the traditional functions served by money, including store of value, medium of exchange, and unit of account, which the institution said would create “fiercer competition” among currencies.

The report also predicts that digital money issuers will attempt to differentiate their currencies by re-bundling monetary functions with things like data gathering and social networking services.

“In combination with digital connectedness, new currencies could lead to digital currency areas linking the currency to the use of a particular digital network rather than to a specific country,” said the document.

But BIS warned that this raises the risk of “digital dollarisation,” in which national currencies are supplanted by the currency of a systemically important digital platform.

The institution claims that digital currencies impact the competition between private and public money. With the possibility of cash disappearing, payments would then centre around digital platforms rather than banks’ credit provision.

In this case, the organisation said, it may become necessary for governments to offer CBDCs to retain monetary independence.

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