How Digital Currencies Benefit Financial Stability
Digital currency is any virtual currency, cash, or other currency-like object that is mostly traded, held or stored online, usually over the Internet. Numerous forms of digital currency are being developed, including virtual currency, decentralized currency and national currency. Virtual currency is usually traded on a global scale through various exchanges such as banks and online trading platforms. Local currency trading is done in local areas through designated brokers or banks. National currency trading is done through central banks that issue coins for a specific country.
A major advantage of digital cash is that it is highly resistant to economic shocks and unexpected drops in monetary policy. For instance, if the Bank of America (BoB) were to suddenly eliminate its interest rate, the market would reaction violently and would cause panic. However, the BoB does not have the power to change its printed asset, like paper money. On the other hand, digital currency can be printed by central banks very easily. Thus, central banks can print virtual money and use it as a substitute for physical cash. The only thing required is a computer with Internet access and a credit card.
On the other hand, digital money can be created by governments, either at the central level or through the banks. In a nation where there is a common currency, like the U.S. dollar, a different monetary system, namely, the federal government notes, can be used. In such cases, the government can change the quantity of bank notes printed, in effect changing the money supply. Digital cash is highly dematerialized and doesn’t carry any interest or real-time value. It can’t be stored in a bank vault and it can’t be traded, since it doesn’t have any inherent value.
With digital currency, it is possible to transfer funds without using a physical form. You don’t need to go through the hassle of transporting it from one place to another. It is also easy to send it over various communication networks, like email or fax. Payments are fast and convenient with electronic transfers. So if you ever travel, you can expect that your bank will have some branches in other countries.
Besides, there are other advantages associated with digital money. Digital currencies are highly flexible, since they can be traded in different markets. They can be exchanged instantly on the interbank market as well as among other central banks.
Also, digital currencies are more secure than traditional currencies because they are not controlled by any single body. This provides an added protection against fraud and theft. In the case of banks, it provides additional security for their customers’ accounts. On the other hand, digital currencies can provide an added layer of protection for merchants. Digital currency can act as a sort of shield that merchants can use to protect their customers’ funds and information from theft and fraud.
The major advantage of digital currency over traditional ones is its flexibility and lack of restrictions. Unlike conventional money that comes in different forms and sizes, these can be traded easily even by people who do not have any online account. Digital currencies are also easy to transfer from one place to another. It can be transferred to other places using the internet or phone.
Digital currencies have been a boon for the economy, since they bring about the much-needed financial stability. However, there are some drawbacks that can be dealt with. They include the inevitable transaction costs involved. These costs are higher than that of conventional money, which also has a limited supply. But compared to the stability that digital currency brings, this cost is actually a price worth paying.