In the US, various colonial and continental currencies were in circulation before independence in 1776. Ten years later, the Continental Congress tied the value of the US dollar to gold reserves, marking the start of almost 200 years on the "gold standard". Even during this era, America suffered from a boom in bank-issued currencies, plagued by the problems that come with over-issuing and devaluation. Some economic historians argue that this wild money financial instability played a role in the ultimate defeat of the South during the civil war. When Richard Nixon finally broke the link to gold in 1971, bullion traded at $35 an ounce. Today it is around $1200 an ounce: in gold terms, the dollar has lost more than 95 per cent of its value. The Romans took two centuries to devalue their money to a similar extent; the Americans have done it in 40 years. Economist Friedrich Hayek proposed that markets to issue currency could be opened up to competition, just like other markets. He saw the benefits of ending the government monopoly over money, putting it bluntly: "with the exception only of the 200-year period of the gold standard, practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people." Hayek was concerned, however, that privately issued currencies would not fair much better.

Free marketeer Milton Friedman rejected Hayek's concern arguing that the "failure" of one currency would quickly impact others because the high costs of switching currencies. For private money markets to work effectively, users must have the ability to promptly and punitively punish (by switching to other currencies) any issuers abusing their customers. The sooner a customer can identify and penalise inflationary overprinting, the more stable a private money market will be. The emergence of digital currencies and the widespread digitisation of trading platforms now allows consumers to act promptly and punitively. Who knows if in the future, Australian airlines will hold digital currency reserves to buffer against changes in the value of our dollar? It would be fascinating to hear what Friedman had to say today about Bitcoins and other digital currencies, with no central authority, corporation or government to control them. The Bitcoin model is attractive, with disaggregated rules around creation and exchange, and with no one company in control, no one person can profit from virtual "over-printing".

Who knows if in the future, Australian airlines will hold digital currency reserves to buffer against changes in the value of our dollar? Maybe the foreign venders will soon prefer to be paid in Bitcoins for large scale infrastructure projects. The possibilities are enormous – and are well worth exploring. A Senate committee inquiry kicks off Canberra today to examine the rapid emergence of digital currencies around the globe. It will address these and other questions, as Australia considers what money might look like in the future. Australia's fledgling digital currency industry is fully supporting the inquiry, and they are right to do so. If they do not help shape their operating regulations, then regulation will soon shape their operations. There is no reason why more competition and choice in money markets can't deliver the same kind of benefits that more competition and choice have delivered in product markets: greater stability, greater choice and ultimately better outcomes. Even if it means giving up some of their powers, governments should be taking the emergence if digital currencies seriously. That is why we are excited about our humble Senate inquiry – we have the opportunity to consider what the future of money might look like.

Matthew Canavan is a Queensland senator for The Nationals and Sam Dastyari is a Labor senator for NSW.