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Monday, March 4, 2024

Is shifting to digital currency a good initiative for central banks?

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Digital currency is the new age emerging alternative for fiat currencies. There is another widely popular term for digital currency which is cryptocurrency. In the last decade, we have seen a drastic boom in the world of cryptocurrency that has changed the global economy. Bitcoin and other cryptocurrencies have become the trending talk of the town now. Although any central authority or regulatory institutions like banks do not influence the functioning of cryptocurrency trade, they are paving ways to introduce this new age currency into their system.

There are many plus points of cryptocurrency that cannot be overlooked. These benefits have led the banking sector to reconsider the importance of digital currency. In this article, we will learn about all the reasons that have encouraged banks to have their cryptocurrency.

Why do central banks want to introduce digital currencies?

We have observed acceleration in the use of non-physical payment methods in the past few years. Especially after the pandemic, the use of alternative methods instead of direct physical cash transactions has rapidly gained popularity and became mandatory to some extent.

Cryptocurrency is a potentially strong substitute. Central banks want to create a digital mode of currency that is convenient and reliable for all-purpose transactions at the same time. They want to make it available to the common public. The currently available cryptocurrencies are not provided or regulated by any central authority. The volatility of cryptocurrencies is a major drawback, but central banks can maintain a static or regulated value of digital currency so that you trust the authenticity, and find it easier to use for all kinds of transactions.

Banks want to adapt to the changing system and transform the world of monetary transactions for the good of the common people. This will also help in the overall growth and development of a country’s economy.

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Why is cryptocurrency not a favorable mode of payment?

  • You cannot use cryptocurrency or digital currency for general transactions, like using it over a retail shop counter.
  • Digital currency does not give a guarantee of exchange into traditional currency at a predictable value as the price is volatile.
  • Bitcoin, like any other cryptocurrency, has a disagreeable reputation because of its anonymity. Users do not need to provide any personal information or identity making it difficult for authorities to track or trace fraudulent activities.

Benefits of cryptocurrency used by banks

  • Mobile and web payment- You can make easy and hassle-free online crypto payments through various websites and mobile applications like visit website.
  • Faster and easier transaction- You can directly get the digital currency into your e-wallets from the central bank without the involvement of a middleman.
  • Insightful- Digital currency can give banks an idea about how the money is advancing in the economy.
  • Decrease in fraud- The growth in digital currency use may help authorities to monitor closely and keep a check on the scam and fraud issues along with terrorist financing efforts.
  • Easy access- The introduction of cryptocurrency will let you have access to various financial services without the need to have a bank account.
  • Better policies- The efficacy of monetary policies can be reformed with the help of digital currency. The banks can bypass the financial markets and change rates on product holding accounts.

Risks involved

Every good initiative has some drawbacks and risks associated with the idea. The introduction of digital currency can destabilize the economy and financial markets. The issuance of digital currency on a large scale can make commercial banks lose their retail deposits.

Conclusion

There are some risks involved with the use of cryptocurrency but then even in its absence, the banking sector has often fallen prey to several scams and cybercrimes. Taking up the digital currency as a mode of payment has more pros than cons and the reform will benefit you for the greater good. Central banks can aid to make the cryptocurrency transaction the new normal.

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