Digital Currency — Future or just a Speculation
Digital Currency has managed to gain its significance from the fifties when the modern-day card concept originated as a Diner Card. The modern payment card was created in 1950 by Ralph Schneider and Frank McNamara who founded Diners Club. This was the first general-purpose charge card, but it required consumers to pay each month’s statement balance in full, unlike now.
Starting with the diner and credit cards, soon they engulfed many more technologies cryptocurrencies, virtual currencies, central bank digital currencies, e-Cash and start being called “Digital Currency”.
With this, the foundation of Digital Currency was laid, with many modifications being made with time with respect to the governing body, taxes, security and privacy. It is a balance or a record stored in a distributed database on the Internet, in an electronic computer database, within digital files or within a stored-value card. Digital currencies exhibit properties similar to other currencies but do not have a physical form of banknotes and coins. They can be used to buy physical goods and services, but may also be restricted to certain communities such as for use inside an online game. One type of digital currency is often traded for another digital currency using arbitrage strategies and techniques.
Considering today’s situation the important question is who governs these digital currencies and how can it be authenticated? So there are two ways for it, can either be centralized, where there is a central point of control over the money supply, or decentralized, where the control over the money supply can come from various sources. This is a bigger challenge in times like now and needs deeper attention when the whole world is locked up at home because of the pandemic of Covid-19 and this makes everyone more susceptible to all the malpractices and crime that can be carried out using these digital currencies.
Some days back Twitter accounts of famous leaders and business tycoons like Barack Obama, Bill Gates, Jeff Bezos were “hacked”(as it is being referred to) and advertised for submitting thousands of dollars of money in some form of digital currency which succumbed many to believe on it and thus became culprits of this crime. This raises questions on the idea of Digital Currency when it is still in the nascent stage and are we prepared to operate and work in this kind of Digital World where a commoner can be easily tricked into some kind of scam because of lack of Technology awareness.
Also recently China announced that they are working on digitising the Chinese Yuan, which would give impetus to the whole concept of Digital Currency. But this raises serious concern for the whole world as rising Yuan as a Digital Currency could drag other major economies in this race. As it is known that China has the world’s largest foreign reserves which surmount to 3 trillion dollars in Federal Reserves as compared to 1.9 trillion dollars by the US. So this can cause serious problems for the U.S. banking system-potentially forcing the U.S. to digitalize the dollar to compete.
Now, the Federal Reserve has warned central bank digital currencies might one day replace commercial banks, creating “a deposit monopolist” and playing “havoc” with the banking system. “The introduction of digital currencies may justify a fundamental shift in the architecture of a financial system, a central bank ‘open to all,’” Federal Reserve of Philadelphia researchers wrote in a 32-page paper titled “Central Bank Digital Currency: Central Banking for All?”The paper examined the potential effects of “giving consumers the possibility of holding a bank account with the central bank directly”-something that could potentially replace commercial bank checking accounts.
If people started to exclusively hold cash with the country’s central bank, the Fed and other central banks could end up becoming a “deposit monopolist,” attracting deposits away from the commercial banking sector. Theoretical discussions around central bank digital currencies, sometimes called CBDCs and often inspired by bitcoin’s blockchain technology, have swirled for the past few years but central bankers have been kicked into action by China’s efforts to digitalize its yuan and Facebook’s plans to launch its own currency Libra.
The Fed’s paper echos a warning raised by the International Monetary Fund in December last year, which said digital currencies could see deposits “withdrawn from commercial banks.” Digital currencies are expected to work just like regular coins and notes issued by central banks but exist entirely online-with some floating the possibility of government-run FedAccounts being used to distribute digital dollars.
China has already begun trialling payments in its new digital currency in four major cities, local media reported at the end of April. Other countries around the world, including Norway, Sweden and Japan, are all working on digitalizing their own currencies.
So it may not be very far when you need not need a physical wallet stuffing it with those minted notes obtained with a sense of gratification after withdrawing it from your nearest ATM machine.
Published By
Parth Kulkarni
Originally published at https://www.linkedin.com.
