What would happen if Central Banks started issuing digital currency?
The world's entire banking system operates with a variety of financial instruments: from precious cash and bonds to credit and debit cards. But what about digital currency?
This is an instrument that has been progressively adopted by various nations with the intention of dethroning cryptocurrencies in order to prevent them from becoming major players in digital payments.
However, not all countries have their own currencies, although there are promising pilot tests. What would happen if this system were to be implemented as a legal and formal means of payment? Here we tell you.
The digital currency era: Is it here to stay?
In August 2021 alone, 81 countries were ahead in studies for the implementation of their own digital currency. In fact, this is indicated by data from the Atlantic Council on centralising and supporting the consolidation of this instrument.
With the cryptocurrency boom starting with Bitcoin, the world became interested in trading in this market. A highly volatile environment that represents a high return and also, unfortunately, a high risk of loss.
The truth is that they have many restrictions and each country has its own rules for acceptance and operation. A digital currency may be decentralised in nature or regulated by a banking institution.
That is, by the country's central bank, the entity charged with directing and enacting laws to prevent illegal actions that harm the economy.
Cryptocurrencies such as Dash, Ethereum, Litecoin, among others, operate on the Blockchain under the operation of developers and different protocols.
On the other hand, digital currencies, which are regulated and issued centrally by the bank, are supported by a monetary authority.
This indicates that you have two options in this system that involve payment technologies to increase sales and grow your business. The question is: will it be temporary or permanent?
The world is going digital at a faster pace every day, trying to stay competitive at a commercial level.
But, in addition, the best and most varied solutions are sought to better meet the needs of demanding customers. This implies a trend towards the use of digital currency, which is more practical, encrypted, fast, legal and secure.
Global acceptance of digital currencies
Did you know that six countries already have their own digital currency from their central bank? They are Bahamas, China, Antigua and Barbuda, St. Kitts and Nevis, St. Lucia and Grenada.
This initiative could be joined by Sweden and the European Union, two more players in a race for virtual currency leadership.
Many states already have pilots in place and there is evidence of currency project names emerging. From China's e-yuan or digital yuan, D-Cash for the Caribbean to e-krona in Sweden: all are under study.
How will digital currency change banking?
Natalia Español, an economist at BBVA, has given her opinion on the situation of cryptocurrencies. She comments:
"From an economic point of view, cryptocurrencies native to decentralised, non-permissioned networks, such as Bitcoin or Ethereum, are not anchored to the value of a legal tender, but are subject to the price set by supply and demand. Moreover, they are not backed by a legal entity to respond in case of technical problems.
What does this mean? That each nation's economic environment requires financial stability and a robust system that adopts a legal tender digital currency.
Although it is not a fact worldwide, digital currencies or CBDC (Central Bank Digital Currency) seem to be the tool of the transactional future. This financial instrument has some characteristics that are well worth knowing:
- It will be accepted and available in all types of online and offline operations 24/7.
- Conversion and value will be anchored to physical money, which avoids volatility.
- It may be tradable between different banking systems.
- Transactions can be executed in a faster, more secure and up-to-date manner.
- Progressively, digital currency could replace the money we know today.
- It represents a secure and robust system against web threats such as cyber-attacks or system crashes.
- The backing of the Central Bank will give customers greater confidence in a legal and efficient tool.
Inclusion or exclusion market?
If digital currency is implemented in banking, financial inclusion will gradually increase. Why is that? This agile, secure, versatile and easy-to-adopt technology can be used universally.
This tool can even be leveraged through alternatives such as Visa and Mastercard around the world. But, in addition, efforts are already beginning to be seen in several countries, still in experimental phases. We tell you about it.
- China: Pilot tests are being developed in Shenzhen, Suzhou, Chengdu and Xiong'an, offering operation by 2022.
- LATAM: In Brazil, a Central Bank project is being promoted to digitise the Real over the next three years. Currently, it is run by a PIX instant payment clearing system and more than 87 million users.
- United States: The "Hamilton Project" is underway by the Federal Reserve and the Massachusetts Institute of Technology to digitise the dollar.
Through these projects, not only the inhabitants of these countries, but the whole planet will progressively benefit.
Today, the key to optimising a company's processes and obtaining higher returns is through innovation and upgrading. Integrating technology to meet payment needs is the ideal alternative.
Digital currency is the first step towards financial digitisation. However, it remains an experiment. Do you have an advanced and concrete solution to power your transactions?
At PAGO46 we provide you with all the payment solutions for your customers and a wide network of Payment Points in Latin America. With our platform you can accept cash payments, with or without integration through your website, app, chat or social networks. Get to know us.
If you liked this article, you may be interested in this article:
Increase the growth of your business by digitising cash payments
Benefits of diversifying electronic means of payment