Since the introduction of Bitcoin in 2009 and the eventual rise of other currencies, there has been a significant impact on both financial systems and central banks across the globe. While some cryptocurrency enthusiasts strongly believe that fiat currency will soon become obsolete while Bitcoin and other altcoins will take over, others believe both forms of money will operate hand in hand.
Other questions that need to be answered are the potential risks of a crypto dominance, the opportunities, and should central banks issue their e-currencies?
A lot of money is already electronic.
Although physical currency is still widely used in most countries (except Sweden, where the use of cash is shrinking rapidly), consumers worldwide routinely conduct transactions without physical currency, using credit cards or mobile phones to pay. Further, much of the money that central banks (bank reserves) issue exists only in electronic form. So in some sense, the idea of digital currencies is not entirely new.
Where Does Cryptocurrency Come in?
With the door open for cryptocurrencies to play their role in national economies, I don’t think they are going to replace government-backed ones any time soon. Despite the popularity cryptocurrency enjoy, it is still faced with the problem of trust, people find it difficult to trust cryptos the way they trust central bank backed currencies like the Yen, U.S dollars and Euro. Despite the flaws of central bank backed currencies people still trust them better than they do to crypto and it might not change anytime soon.
However, it’s take great risks to unlock great opportunities. Cryptocurrency isn’t risky per say, some trading platforms that disappear with people’s money are one of the reasons for fear. Nonetheless, with reliable platforms like BitQT, there is no need for such panic. BitQT prioritizes customer relationship and satisfaction and can be relied upon.
Possible Effects On The Local Economy
Despite the observation above, cryptocurrencies could still influence the local economy in a big way. Cryptocurrencies could increase transactions speed of both local and international transactions, they will also make transactions more affordable, and help make financial systems available to almost every one, irrespective of who they are, what they do or where they stay.
Possible Effects of Cryptocurrencies on Local Economy
Despite its potential benefits (decrease the cost of sharing information and overall transaction cost) which is amazing, but it also has some nagative effects like intensifying contagion and distabilizing financial markets.
Crypto can also overuse the business models of conventional banks and their significance in the local system, this will make it almost impossible for the central bank —whose operation largely depends on the existing banking system —to regulate the financial market.
Should central banks adopt digital currencies?
As it stands, some central banks have made this move, and many other are considering going down the road. These central banks are considering exploring different digital currency options most notable is creating a structure that allows people make electronic deposits and withdrawals.
But judging by the overall percentage, the figure of central banks who have adopted digital currencies still remain low. But some notable countries are Tunisia and Ecuador. Sweden is also witnessing a decrease in the use of cash, and its central bank is contemplating using e-krona.
By issuing its own digital currency, central banks will also be able to stay relevant and avoid losing its standing to the unregulated cryptocurrency market, it will also help central banks regulate and hold on to the local economy.
But with the introduction of digital currencies, traditional banks will lose they place as intermediaries between people and lenders. Whether or not this is a good thing, US dependent on central banks intervention.
Overall, crypto will certainly have significant impact on a countries local economy, first it will increase financal inclusion of both people and companies, it will also reduce transaction fees and transaction time for financial transactions.
Also Read: Benefits of Cryptocurrency ATMs