With an ever more digitally based world, it only ever seemed a matter of time before the oil which keeps the world turning, money, would soon fall into the digital space but not in the form you expect.
We’ve all heard of the cryptocurrencies that seem to have dominated the online space with the allure of the masses of money that can be made. Digital currency slightly differs in this respect. It is not something that can be “mined” (a common method by which new crypto is minted in the blockchain), nor susceptible to the volatility of the stock markets.
Digital currency seems to offer it all, universal accessibility, which allows the 1.7B people throughout the world who are entirely cut off from the financial system which heavily depends upon physical cash. Furthermore, the system is entirely electronic which allows a greater historical record to be stored digitally, which can prevent fraud and increase the capacity of the bank to fight criminal transactions. Quite arguably the element that sets Digital currency apart is being backed by the central bank, allowing for the digital currency to be directly tied to physical currency.
For instance, £10 worth of digital currency is equivalent to £10 of “real” cash which inadvertently circumvents any problem of lack of trust because it would simply be the cash in your pocket but in your digital pocket.
To be honest the benefits spell of something future-like, something we would see in 30 years that’s simply a thought in the mind of visionaries soon before their time, but no. Last year, 80% of central banks were exploring the idea of CBDC (Central Bank Digital Currency), but as of late up to 90% of central banks are experimenting and the same thing goes for experimentation the last year, we have seen a jump from 40% to 60% more banks have been testing out CBDCs in a controlled area. This massive change may be influenced by the massive decline in cash transactions.
Some may view this skeptically and begin to question other than the benefits offered and the arguably greater control of the central bank of even minute transactions where the real tangible benefits lie for the central banks, not just the individual. It’s the massive reduction in processing costs. It may remain fairly unknown but spending money incurs a price to make that retail payment. Throughout a whole nation and millions of transactions, this stacks up to a surprising proportion of that nation’s GDP, the USA spends 0.5% – 0.9% of its GDP making retail payments.
While the west seems to toy with the idea and implement slowly but surely, China has seemed to have beaten us to the race with the biggest CBDC development program since April 2020. The movement away from physical currency and in turn a dependency on the US dollar , China has sent a clear message that they plan to spearhead the future and the rest of the world can find its self at the stake or join the ever more rapidly digitalizing world.
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