Finance is undoubtedly one of the most transformed industries of our time with technology. The collective merger, known as FinTech, has brought mind-boggling changes to how finances work worldwide. Besides, making online transactions the easiest process, the tech world has the challenge of making new-age currencies authentic and safe, which is being addressed with the emergence of Digital Currency.
In simplest terms, digital currency is the storage, management, and exchange of money or money-equivalent assets over internet-connected digital or electronic systems. Cryptocurrency is a widely known form of digital currency but, it is not the only form. The three types of digital currency namely, Cryptocurrency, Virtual Currency, and Central Bank Digital Currency (CBDC).
Current Buzz in Digital Currency Space
Among the various types of digital currency, the fanbase for cryptocurrency is unmatched. Be the biggies in the technology sector or financial space, everybody is betting big on the potential of cryptocurrency.
So much so that names such as Bitcoin, Ethereum, Dogecoin, XRP, and many such cryptos became trending topics of discussion and investment opportunities for youngsters and adults all over the world, with crypto wallet applications on their smartphones. The valuation of the global crypto industry based on June 2023 estimations is above USD 1 trillion.
Though crypto is an enticing prospect for many to invest and grow their money, it is not being backed by governments around the world, which makes them fragile and unprotected by regulations. To make such currency authentic and safe, governments all over the world are in the process to launching their own currency’s digital version.
According to the think tank published by the US-based Atlantic Council in June 2023, worldwide, 130 countries are in the process of exploring ways to make digital versions of their physical currencies. This accounts for 98% of all the countries in the world.
The progress of making central bank digital currencies, in G-20 nations is in advanced stages, with the exception of Argentina. In fact, 11 countries including some of the Caribbean nations and Nigeria have launched their version of central bank-authorized digital currencies.
The emerging economies of the world, India and Brazil, are planning to launch their digital currency next year and have their pilot project for the same in action, in various consumer market segments. The European Central Bank is working to introduce the pilot of digital euro, before its possible launch in 2028.
Factors Boosting Adoption of Digital Currency
As is identified, the 21st-century world runs on the oil called Data. The faster and safer the data exchange is, the more it makes business and banking processes convenient in everyday life. Digital currency is a form of digital data that is being rapidly streamlined with digital computer systems and mobile wallets, all over the world to transform the way commerce works.
The enthusiasm with which private players around the world, such as Coinbase, Ripple, and Binance, entered and made their base in the digital currency space, is exemplary for many new-age industries. Similar efforts are being pushed by various governments, for the launch of centrally owned digital currency. This is being done in collaboration with banks and major players in various industries, to test the possibilities of digital currency usage in various scenarios.
- In November and December 2022, the Reserve Bank of India (RBI) launched a pilot digital rupee (e-rupee) project in the wholesale space.
- China, the major global economy, is testing the possibilities of digital currency ever since 2014. It launched the pilot CBDC program for digital yuan, or e-CNY, in 2020. According to the news reports in June 2023, the Government of China is aiming to make digital Yuan transactions a way of payment for its 1.4 billion population.
- The US is also in the process of developing its own centrally-owned digital currency. The development of bank-to-bank digital currency was recently confirmed by federal officials.
The advantage of being regulated by governments will help CBDC to gain reliability in national and international commerce. However, cryptocurrency is currently a giant and decentralized digital currency, which makes it a cost-effective transaction mode and resilient to inflation. All things considered, how CBDC competes with cryptocurrency, only time will reveal, as the former is still in the primitive stage.