Inside Money: Traditional Forms Challenged by the Emergence of Cryptoassets

• Creation within the private sector

• Liability on someone else's balance sheet

• Examples: fiat currencies, stocks, bonds, treasury notes Inside money is created within the private sector through fractional reserve banking and is debt-based. It serves as a liability on someone else's balance sheet and can take forms like fiat currencies, stocks, bonds, or treasury notes. Inside money is susceptible to the collapse of the global banking system, which could render it useless in such a scenario.

Outside Money: True Independent Assets Beyond the Banking System

• Not a liability on someone else's balance sheet

• Retains utility in the event of banking system collapse

• Examples: gold, timber, tungsten, real estate, Bitcoin Outside money, on the other hand, is not a liability on someone else's balance sheet. It includes assets like gold, timber, tungsten, real estate, and Bitcoin. The key distinction between inside and outside money is that outside money is not controlled by the global banking system. If the banking system collapses, outside money will still retain its utility, allowing it to function independently.

Balancing Economic Stability: The Interplay between Inside and Outside Money

• Complex dynamics between inside and outside money

• Influence on money supply, interest rates, and economic activity

• Importance of a balanced approach Inside and outside money interact in complex ways, influencing the overall money supply, interest rates, and economic activity. Striking a balance between the two types of money is essential for maintaining economic stability and promoting growth. As cryptoassets emerge as a new form of outside money, it is crucial to consider the broader financial system and the implications of new forms of money on traditional structures.

Monetary Policy Challenges: Walking the Tightrope in a Shifting Landscape

• Central banks' responsibility to balance levels of inside and outside money

• Managing supply of outside money and setting key interest rates

• Challenges in maintaining economic stability and promoting growth Central banks and policymakers must carefully balance the levels of inside and outside money to maintain economic stability and promote growth. With the emergence of new forms of outside money, such as cryptoassets, central banks face new challenges in managing the monetary landscape. By managing the supply of outside money and setting key interest rates, they can help navigate the intricacies of a changing financial system.