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Nearly all Governments worldwide (e.g., the UAE, India, and others) are planning to launch official digital currencies. Hence, it becomes imperative for all of us to understand more about these new currencies since sooner or later, we will all have to start using and transacting with them, and they will become mainstream.
Read on to understand these currencies further and their implications.
Table of Contents
ToggleWhat is a ‘currency’
As we know, a currency is essentially a medium of exchange. Early commerce was in the form of barter (e.g., exchanging rice for sugar), and then coins were introduced as a means of exchange, and they possessed value.
In today’s world, different countries issue their currencies, which are exchanged with other nations’ currencies based on an exchange rate. In many cases (e.g., in the Gulf), the currencies are linked to the US Dollar.
Rise of e-Currency
From the 1960s, with the advent of computers, more and more transactions have involved electronic transfers with no paper currencies or coins being used. In more recent years, with so many fintech companies entering the fray, money transfers happen from device to device without even needing an intermediary like a Bank!
In fact, more than 90% of financial transactions now take place electronically. We trust our account-balance that is shown in our online accounts and purchase goods and services using credit cards or device transfers with the Bank’s systems showing the net position of our accounts and settlements.
Types of digital currencies
1. Crypto-currencies:
e.g., Bitcoin, which are non-regulated and have widespread publicity due to the degree of speculation and in some cases, fraud associated with their use, but still appear to be growing in use.
2. Stablecoin:
Stablecoin is a form of digital currency pegged to a currency, financial instrument, or commodity.
3. A digital currency set up and controlled by a Central Bank:
This would usually be linked at parity to the national currency. 3 countries (as of July 2024) have fully set up a digital currency- the Bahamas, Nigeria, and Jamaica, but a total of 134 countries are exploring this option.
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Difference between digital currencies and digital transactions
It might be coming to your mind that what is the difference between digital currencies and the e-transactions that you might be already doing…the point in digital currencies is that there is no monitoring by a Bank or Government institution. Hence, if the provider of goods or services accepts the digital currency, you can purchase directly from them and the transactions are in real-time and the system operates 24/7.
Cross-border payments are quicker and there are no transaction fees. They would also provide benefits for low-income people who might still be unbanked in many parts of the world.
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Conclusion
It is very much possible that the lack of regulation means that digital currencies could also be used for illegal purposes (e.g., drug dealing or financing terrorist activities). So, it will indeed be interesting to see how digital currencies become more and more mainstream in the coming years across different countries in the world.