Dominant Money

Abstract

This paper outlines a theory of dominant money, i.e. the means of payment that determines the money system and monetary policy during a certain epoch. In modern times, there have been three tidal changes in the composition of the money supply with a new type of money on the rise: unregulated paper money since the 1660s, the rise of central-bank legal tender notes towards the middle of the 19th century, and the rise of bank deposit money from around 1900. An analysis of the current situation suggests we are now entering another such era in which sovereign digital currency issued by the central banks (CBDC) is set to becoming the next dominant type of money.