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The World is Walking the Path of Digital Currency

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Cryptocurrency or digital currency is becoming increasingly popular around the world. This timely innovation is radically changing the way people think about financial transactions. Big investors and the corporate world have also taken notice. Currently, thousands of cryptocurrencies including Bitcoin, Ethereum, Ripple, Litecoin are circulating in the virtual world. It encourages illegal transactions including gambling, hundi, smuggling, cyber extortion, which has worried the policy makers of the world. So they are walking the path of legal digital currency against bitcoin. Central banks are conducting research on the use and impact of these currencies. The currency is being used experimentally in 26 cities in China. Last year the Bahamas became the first country in the world to officially launch the digital currency ‘send dollar’.

What is digital currency?

Digital currencies are those currencies that are only traded in the virtual world. Which in reality has no existence. All information in the exchange is confidential, most of the time unknown. This type of digital currency is called cryptocurrency. Bitcoin was introduced in 2009 as the world's first digital currency. However, even though cryptocurrency has an online value, no government or central bank controls it. In the meantime, several thefts have also taken place. So that billions of dollars of cryptocurrency have been lost.

Differences in online transactions

There is a difference between digital currency and current online currency transactions. For example, online shopping in the United States is currently billed in dollars, but in the case of digital currency, digital currency is sent to the seller using a mobile device, not dollars. Payment apps like Venmo, PayPal or Apple Pay are no different now than the ones people pay for. The electronic form of currency has already become influential in the financial systems of many countries around the world. In the United States, the world's largest economy, the use of the dollar is only one-tenth of the total money supply. The rest of the transaction is online. So central banks are now researching their own currency creation and its impact. That digital currency is called Central Bank Digital Currency or CBDC.

What is CBDC?

The Central Bank Digital Currency (CBDC) is a currency that central banks will approve and oversee transactions. According to Forbes Magazine, 80 percent of the world's central banks are researching the technology. The United States, China, Russia, Japan have come a long way. The US Federal Reserve and MIT are jointly conducting research on CBDC through the Hamilton Project. The goal of this project is to determine how digital currency will work and what kind of system needs to be developed in this regard.

According to the Bank for International Settlements (BIS), which surveyed 65 central banks around the world, 85 per cent of banks are working with CBDC in one way or another. 15 percent of the research is going to the pilot project. According to BIS, the central banks are trying to understand how much the people will benefit through CBDC, how much public confidence, price stability and transaction security can be ensured.

"The world is increasingly driven by cashless transactions," Piaro Cipolne, deputy governor of the Bank of Italy, told CNBC. The use of cash is now declining in all areas starting from customer-merchant transactions. As a result, the central banks are working with CBDC considering the needs of the time.

Big countries on the way to digital currency

CBDC is being tested in many countries including the United States, United Kingdom, China, Japan, Russia and India. China last year introduced the digital version of the local currency, the yuan, DCEP (Digital Currency Electronic Payment) in major cities. This pilot project is gradually expanding. Digital A currency has been named 'E-CNY'. Britain is also moving to bring in its own digital currency as cash transactions in the corona decline. Probably named 'Britcoin'.

The Bank of England recently announced the formation of a task force to work with potential CBDCs. The European Central Bank has also announced the possibility of introducing digital currency within the next four years. Saudi Arabia and the United Arab Emirates are also working on this. According to a study in India, CBDC will add 2-3 percent to the country's GDP. Even if 1 percent is added to GDP, it will exceed 25 billion a year.

Jerome Powell, chairman of the US Federal Reserve, said: "The Fed is considering the possibility of creating a digital dollar. We think it is our responsibility to understand the matter first. How it will work and what its features will be, etc.

He said the Fed is developing a software, even designing what the digital dollar will look like. But the final decision, or public disclosure, will be made only when its effects are fully understood. He added, "The dollar is the world's reserve currency, the dollar is very important. We do not want to be the first to create digital currency. We have to move forward with our thoughts. '

Powell indicated last October that the United States was considering approving its own cryptocurrency. However, he warned that it would take time to assess the benefits and risks of a digital currency. In a recent interview in New York, U.S. Treasury Secretary Janet Yellen said creating a digital currency would be profitable for the U.S. economy.

How CBDC will work

CBDC will work just like cash. Jim Chunha, senior vice president at the Federal Reserve Bank of Boston, said: 'If I give you a 100$ CBDC, it will be instantly added to your account, it's yours. I can't take it back. This is a major difference with other electronic payments. Like if I send you money on PayPal, it’s actually a promise, money is coming. Showing in your balance, but this money has not yet gone from one bank to another. As a result, third parties will be able to withhold money in these transactions. But if the CBDC transaction is done, the money will go away immediately. There will be no chance of withdrawal. Another special advantage of CBDC is that it will be a legally legal tender. As a result, everyone is forced to accept in exchange for money. He said 'You can easily use this currency in everything from paying your taxes to shopping.' The current digital currency is not legally valid. As a result, it is not accepted by anyone except certain individuals or organizations. Lila Tesler, head of Siddle's FinTech and blockchain group, said: However, it is difficult to say at this moment what the system will be like. CBDC will be the digital version of the printed currency.

That benefit can be found

Shopping, transactions or payments in legitimate digital currency will all be faster. Expenses for international remittances or remittances will be reduced, no need to carry cash, out-of-account or bank disadvantaged people will benefit. It will be easier to collect government taxes or VAT and it will be easier for the poor to get allowances or scholarships. With easy access to remittances, people will not transact in illegal currency. The value of the cryptocurrencies that currently exist changes rapidly. This harms the users. In contrast, CBDC will be much more stable. Another big advantage is that the introduction of digital currency will reduce the printing of paper coins. This will save a large amount of government revenue. "Current digital currencies cannot be converted to print currency, but CBDC can be converted to print currency at any moment," said Jim Chunha, senior vice president at the Federal Reserve Bank of Boston.

Sources

  • Forbes Magazine

  • AFP

  • BBC

  • International banker.com

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