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ORCID

Kjell Hausken 0000-0001-7319-3876

Abstract

The article analyzes how conventionalists, pioneers and criminals choose between a national currency (e.g. a central bank digital currency) and a global currency (e.g. a cryptocurrency such as Bitcoin) that both have specific characteristics in an economy. Conventionalists favor what is traditional and historically common. They tend to prefer the national currency. Pioneers (early adopters) tend to break away from tradition, and criminals prefer not to get caught. They both tend to prefer the global currency. Each player has a Cobb-Douglas utility with one output elasticity for each of the two currencies, comprised of backing, convenience, confidentiality, transaction efficiency, financial stability, and security. The replicator equation is used to illustrate the evolution of the fractions of the three kinds of players through time, and how they choose among the two currencies. Each player’s expected utility is inverse U-shaped in the volume fraction of transactions in each currency, skewed towards the national currency for conventionalists, and towards the global currency for pioneers and criminals. Conventionalists on the one hand typically compete against pioneers and criminals on the other hand. Fifteen parameter values are altered to illustrate sensitivity. For parameter values where conventionalists go extinct, pioneers and criminals compete directly with each other. Players choose volume fractions of each currency and which kind of player to be. Conventionalists go extinct when criminals gain more from criminal behavior, and when the parameter values in the conventionalists’ expected utility are unfavorable, causing competition between pioneers and criminals.

First Page

104

Last Page

133

Page Count

133

Received Date

27 September 2021

Revised Date

24 November 2021

Accept Date

3 December 2021

Online Available Date

30 December 2021

DOI

10.7172/2353-6845.jbfe.2021.2.6

JEL Code

C60; E50

Publisher

University of Warsaw

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