Before the epidemic, digital payments had been popular for many years. Last year, the new crown pneumonia pushed up the number of users of digital payments, which in turn led to the acceleration of the development of digital currencies. However, countries have completely different views on digital currencies. Is it necessary to develop digital currencies?
Many countries around the world have invested in digital currency development
The popularity of digital payments and the rising prices of cryptocurrencies, coupled with the epidemic has fueled the flames, many governments or central banks around the world have invested in the development of digital currencies, or increased their schedule. According to a report by PWC, the top three countries developing retail digital currencies are the Bahamas, China and Cambodia. China is the first country to digitize currency, and has so far issued central bank digital currency (DCEP) worth millions of dollars. The Bahamas officially issued “Sand Dollars” in October 2020, becoming the first country in the world to launch a universal digital currency. Cambodia’s digital currency, Bakong, has also been launched in January 2020, and 11 banks will cooperate as soon as it is issued. The Bank of Japan also launched the first phase of testing this year; the United Kingdom is also studying its own digital currency “Britcoin”; the Indian government has proposed the “Cryptocurrency and Official Digital Currency Regulatory Act” as the basis for its digital currency construction and development. Switzerland and France started Europe’s first cross-border experiment of digital currencies.
Why are countries pushing digital currencies?
Digital finance has been developing for many years, and the original digital currency has made great strides. Why has the digital currency (CBDC) been taken seriously in the past two years? The first is the application of blockchain technology, whose encryption security and non-tampering characteristics break through the dilemma of digital currency technology. In the last year’s pneumonia pandemic, people were unable to buy goods with cash and could only use online transactions, which led to a significant increase in demand for digital transactions and stimulated the determination of governments in various countries to develop digital currencies.
Advantages of digital currencies
What features of digital currencies are better than existing payment methods? First, digital currency allows people without bank accounts to use the financial system. For example, through digital currency, the government can distribute bail-out funds to businesses and people in need at a faster rate during the epidemic. As for emerging countries, the lack of popularization of private finance and electronic payment systems has made it impossible for the people to use the financial system. Digital currencies help financial inclusion, accelerate the popularization of financial services, and promote national economic development.
Furthermore, digital currencies are issued by central banks of various countries, which can not only curb the rampant of counterfeit banknotes or counterfeit currencies, but the central bank can more effectively control currency settlement and its liquidity, and can also become the ultimate institution for lending to the private sector and play its irreplaceable key. effect.
In recent years, digital payments have also sprung up, such as PayPal, a well-known European and American company, and WeChat payment in China. Among them, China’s WeChat Pay has become the mainstream of China’s consumer payments, almost replacing cash. When people increasingly rely on third-party payment, the industry monopolizes the payment market. If the company goes bankrupt, it will cause serious systemic risks and shake the national economy. The digital currency can allow the country to regain its dominance, play a role in balancing the private sector in the payment process, and maintain the soundness of the financial system.
More importantly, digital currencies are not completely anonymous, and the central bank can have a certain degree of control over the currency flow, which can prevent financial crimes such as money laundering and stabilize the country’s finances.
Digital currency may impact bank stability and personal privacy
Although digital currencies have many advantages, they are not perfect. For the bankers, the issuance of digital currencies may affect their operations. Nowadays, banks turn people’s deposits into investment for profit, or lend money to companies or individuals in need to earn interest. And digital currency allows individuals and businesses to skip the bank and deposit money directly in the central bank. In the event of a financial crisis, it will accelerate the outflow of private funds from private financial institutions, causing banks to fail due to insufficient funds, which will cause another wave of financial problems.
Furthermore, the design of the operating system of digital currency is not easy, and the security is more difficult to control. Especially today, when hackers are rampant, if the system is hacked, it will cause serious financial disasters and unpredictable losses.
The protection of personal financial privacy is even more widely questioned in the digital monetary policy. Different from the traceable flow of digital currency, cash transactions only recognize the authenticity of banknotes or coins, and cannot show the process and path of their circulation. The public can keep their financial privacy or the right not to be revealed in their consumer behavior. Once the digital currency is fully used, it may infringe on the privacy of the people.
Furthermore, digital currency may also become one of the means by which the government manipulates the people. For example, if there is a fine, it is immediately deducted, or it is abused by unscrupulous people in the government to freeze people’s funds at will, affecting people’s rights and interests.
Although doubtful, digital currency is unstoppable
Some Fed officials expressed strong doubts about digital currencies, believing that there are other ways to achieve the same advantages and effects as digital currencies. Compared to the Fed’s doubts, the Bank for International Settlements (BIS) took the opposite view. BIS has publicly stated its support for the digital currencies of central banks of various countries, and estimates that 56 central banks or related institutions around the world invest in digital currency development. If all of them are successfully developed, it will cover more than one-fifth of the world’s population.
Although digital currency still has its difficulties and shortcomings, the shortcomings do not conceal the advantages. Driven by its unique advantages and the general environment, the world’s demand for digital currencies will only grow stronger and become an unstoppable global trend.