The Effects of a Global Digital Currency – Dialogue & Discourse
A global digital currency, often referred to as a cryptocurrency, is a virtual medium of exchange that has been introduced into the modern world within in the past few years and despite much speculation about its safety, among other things, cryptocurrencies have the potential to completely transform the exchange of money around the world.
They have the potential of doing away with fees, delays and other barriers on the flow of cash. It might give those in less developed countries access to the financial system and a means to protect hard-earned wages against inflation.
This is what Facebook promised, on 18th June 2019, with their introduction of a new entirely electronic currency known as Libra. This social media network aims to further integrate cryptocurrencies into the global market.
As we see countries slowly moving away from fiat currencies, such as Sweden, whose demand for cash has dropped by more than 50 per cent over the past decade and more than half of all bank branches no longer handle cash, we must ask, do the negatives of a virtual currency exceed the positives or would the world be better off completely cashless? There are many effects of this exchange upcoming in the world. In this article, these points will be discussed.
A big benefit of cryptocurrency is that it allows people to have ultimate control over their money, including whom they send it to and what types of fees they do not have to pay. Cryptocurrencies could help to get rid of intermediaries in everyday transactions. This could cut costs for businesses and save consumers quite a bit of money around purchases as it would see the breaking down of geographical barriers.
Digital currency transactions can take place at the same speed, regardless of where the sender and receiver are located. If in future, transactions with services and goods are to be handled by automated systems, the cryptocurrency would remove many of the intermediaries that would take their own cut.
As well as protecting people from runaway inflation, cryptocurrencies also cut down on theft and other forms of crime, as people cannot be robbed for their money as easily by criminals.
Now the money is tied up electronically, people cannot be stolen from and, to a certain extent, can keep track of where their money goes. This is a high-risk factor in less developed countries, in which people often have their money on them rather in bank accounts safe.
However, this is a double-edged sword as if an economy was to go completely cashless, the removal of intermediaries taking a slice out of transactions would cause them to lose their source of income.
A whole sector of jobs including agents, brokers and wholesalers would become virtually obsolete in an instant and with this would come along an increase in unemployment. In addition, the continuous developments in technology further remove the need for employment in workplaces, as improvements in AI makes business costs of production even cheaper than employing people.
This forever decrease in the need for employment coupled with the ever-growing population means mass unemployment, and with an economy that removes a whole sector of intermediaries. This will spiral the problem out of control.
Nonetheless, the cryptocurrency cannot be bound by interest rates, transaction charges or exchange rates, and due to their decentralised and unregulated status, cryptocurrencies cannot be manipulated as much as fiat currencies. This means the prevention of the printing of money by governments. This is a large bonus to those in less developed countries as cryptocurrencies protect people’s hard-earned money from unpredictable inflation.
This risk has caused mass poverty many a time, namely the most recent occurrence of hyperinflation in Venezuela which was once boasted as Latin America’s richest economy — boosted by the biggest oil reserves on the planet.
This is now under corruption, mismanagement and high levels of debt have seen the country’s economic collapse under their current President Maduro. If the people’s money had been kept under a virtual medium of exchange, this devastation would have been prevented.
However, this lack of control also leads to negatives as now at the highest level, governments will be hit hard, as they will no longer exercise the same level of control over the country’s currency if it were to go entirely cashless. The Governmental control over central currencies is key to regulation in many ways, and without regulation, economies will lack allocative efficiency, and other things, thus making cryptocurrencies potentially detrimental to the economy as it operates with much less government purview.
Governments could no longer, for example, determine how much of a currency to print in response to external and internal pressures. If an economy which depends on government intervention (i.e. a command economy) becomes dependent entirely on cryptocurrencies, there will be eventually an unpreventable misallocation of resources, resulting ultimately in market failure.
Nevertheless, even though this system would provide those in the less developed areas of the world with access into the financial system and ultimately a safety net from crimes directed at them physically, the use of cryptocurrencies may cause an increase on the amount of transactions in crime and will cause a loss of government surveillance on tracking and fighting crime.
Certain modes of cryptocurrencies, such as the Bitcoin, are simply untraceable and makes the mode of transactions between criminals, faster, easier, cheaper and less of a risk for them than physical exchange.
Criminals cannot be found ‘red-handed’ with electronic currencies the same way they would have been exchanging fiat currencies physically and people may be more inclined to enter crime due to the lowering of risks associated with it.
Moreover, cyber-attacks may become even more of a threat if companies, such as Facebook, do not properly safeguard their platforms, as there will be more money at stake. Scams will also become more frequent if the use of cryptocurrencies grows.
To conclude, cryptocurrencies as a medium of transactions will be beneficial for the world economy if only partially integrated. As discussed, an entirely cashless world would not be effective and could cause many issues for the governments particularly. Traditional currencies will lose value without any means of recourse.
Should cryptocurrencies take over entirely, new infrastructure would have to be developed to allow the world to adapt. There would inevitably be difficulties with the transition, as cash could become incompatible quite quickly, leaving some people with lost assets, and established financial institutions would most likely have to scramble to change their ways.
There are many benefits for the individual, but the change stands to pose some major challenges for the global economy in its current form, and therefore, maintaining fiat currencies in conjunction with digital currency would be the most effective way forward.
Published at Sat, 30 Nov 2019 11:06:58 +0000
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