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Munich Personal RePEc Archive

Smart Banknotes and Cryptobanknotes: Hybrid Banknotes for Central Bank Digital Currencies and Cryptocurrency Payments

Noll, Franklin and Lipkin, Andrei (2021): Smart Banknotes and Cryptobanknotes: Hybrid Banknotes for Central Bank Digital Currencies and Cryptocurrency Payments.

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Abstract

We are heading for a cashless world. At some point, we will say goodbye to all those pieces of paper and polymer and switch to an electronic alternative. The only problem with these statements is that people have been saying them since the late 1960s. Banknotes have a robust technology and will be around for quite some years to come.

What is needed is a transitional device that will ease the transition from nineteenth-century cash to twenty-first-century digital currency. The answer is a hybrid banknote.

Basically, a hybrid banknote is a physical banknote on a paper or polymer substrate that can transfer value over an electronic network. It is denominated and has all the physical properties of a traditional banknote, allowing it to pass hand to hand. However, when the need arises, the user can access an electronic network and transfer the denominated value off the hybrid banknote.

In this paper, we look at the past and present of hybrid banknotes, identifying their two basic forms—smart banknotes and cryptobanknotes—and how they differ. We also offer three hybrid banknote models that can be used to address pressing needs in payments technology.

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