Several cryptocurrencies are now being used in the world such as Bitcoin,
Ethereum, and now the central bank digital currencies (CBDCs). Since they are
getting popular, these currencies are changing the ways in which transactions
are effected, affecting fiscal and monetary policies, generating innovative
chances and threats in the global environment.
Rise of Digital Currencies
The start of a new type of money can be traced back to 2009 with the launching
of Bitcoin. Since then, thousands of cryptocurrencies have come onto the
trading scene providing a decentralised means to fiat money. Some trends that
have influenced the digital currencies include stablecoins, central bank
digital currencies and block chain technology that placed the currencies in our
day-to-day financial discussions.
Impact on Global Transactions
It has been recently observed that traditional cross-border payments are
undergoing a change through the dint of digital currencies. Current banking
systems have high charges and processing durations while on the other hand
digital currencies have near real time processing functions with no
go-betweens. This is particularly of great significance to the developing
economies that experience difficulties in availing international banking
facilities.
Redefining Financial Inclusion
Digital currencies are a redeeming feature to the under banked population.
World Bank has stated that the number of unbanked adults around the global stands
at 1.7 billion. Social participation can be achieved by using a smartphone or a
computer and the internet to perform transactions and other activities that
make the world global through the use of wallets as well as other
cryptocurrencies, which helps expand financial inclusion.
Challenges and Risks
However, like with all things, digital currencies present some complications.
Some of the challenges that have to be met are regulatory, these including
uncertainty, volatility, and security and/or privacy concerns. Often
governments and central banks engage in discussions regarding the ways they are
to regulate digital currencies in order to preserve consumer, along with
encouraging more innovation.
The Role of Central Banks
This paper highlights that due to the emerging dominance of cryptocurrencies,
many central banks have gone ahead to design CBDCs. These digital versions of
fiat currency seek to bring advantages of cryptocurrencies, including
high-speed when transacting, while at the same time being under the control of
the government and the regulatory authority.
Future Outlook
With time, it can be ascertained that more and more digital currencies are going
to take their toll on the world economy. Smoothing over how some industries
work and even impacting policymaking related to money, the digital currency
evolution is in its infancy, but it already hints at the redesigning of the
future of other financial systems.
Conclusion
The future of digital currencies is bright, and the present is living through
another revolution in the economy. In the future therefore, as the uptake of
digital and virtual currencies increases making significant strides, their
functions and effects will be significant for both the individual and
governments. Of course there is risk and uncertainty but there is big
potential, and digital currencies will only become even more integrated into
the world economic system.
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