Connectee news

Popularization of digital currencies

The fall of cryptocurrencies has put investors in a daze. But despite the losses of investments and further risks, the development of digital technology in the financial sector will continue and, judging by all appearances, it is the future. Another question is how quickly these changes will take place because this problem has a political overtone. It is well known that no state wants to lose its monopoly on the issue of money.

However, money is now on the threshold of a transformation that could change banking, finance and even the structure of society. The era of "physical currency," cash money, is coming to an end, not only in advanced countries but even in countries with low- and middle-income populations.

A new round of competition between official and private currencies is emerging. This is happening both domestically and internationally. The proliferation of digital technologies can promote useful innovations and access to basic financial services. At the same time, there is a risk that these technologies could increase the concentration of economic power and allow large corporations and governments to further encroach on our financial and private lives.

Meanwhile, financial authorities believe that if decentralized payment systems displace cash and traditional payment systems managed and regulated by financial institutions, financial and economic instability will result. A payment infrastructure entirely in the hands of the private sector may be efficient and cheap, but some parts may stagnate if credibility is lost in times of financial turmoil. Without a functioning payment system, the modern economy will come to a halt.

To prevent this from happening, authorities in various nations are now considering issuing so-called central bank digital currencies (CBDC). This kind of virtual money is designed to ensure financial inclusion and increase the efficiency and stability of payment systems. In addition, CBDCs will complicate criminal activities such as drug trafficking, money laundering and terrorist financing, and bring entire sectors of the economy out of the shadows, making tax evasion more difficult. However, CBDCs have disadvantages because they pose risks to the banking system.

In the coming years, central banks and governments will have to decide on policies for new financial technologies. They will have to decide whether to passively embrace innovation, led by the private sector or to take advantage of the potential efficiency gains that are driving the further proliferation of digital currencies. But the cryptocurrency boom and bust has shown that regulation of this sector will be essential to maintaining the integrity of payment systems and financial markets, ensuring adequate investor protection and financial stability. Therefore, the main challenge for central banks is to encourage financial innovation while reducing risk for investors and maintaining financial stability.