Digital Fiat currency
Transacting familiar currencies on the blockchain presents unique challenges when compared to those associated with existing cryptocurrencies. One of the main challenges is how to ensure all versions of a currency trade at par with one another. This requires an entity or entities to provide backing of some kind.
The entity that provides this backing could be the central bank or in the private sector. The precise balance of responsibilities between the public and private sectors will be different depending on policy choices made in different countries. Supporting many different potential implementations will require technology flexible enough to accommodate this. Our goal is to create the technological tools needed to implement a digital fiat currency (DFC). We are using the Cryptokernel blockchain toolkit developed at the DCI to build the DFC prototypes.
We have engaged with a number of central banks in an effort to understand their considerations and address them in our research when possible. Central banks regularly undertake research papers with external academics in a particular field, this work is in that tradition and, as with all academic research, does not imply endorsement of any policy position. The central banks are: Bank of Canada, European Central Bank, Federal Reserve, Bank of Japan, De Nederlandsche Bank and Monetary Authority of Singapore.