Digital currencies that will change the financial world .. What are they?

It appears that technological change will tip the scales of the world of finance.

Bitcoin has gone from being an obsession of anarchists to a trillion dollar asset class, and many fund managers insist it belongs in any balanced portfolio.

But the British magazine The Economist believes that the less noticeable disruption between technology and finance may be the most revolutionary, which is the creation of government digital currencies whose primary goal is to allow people to deposit money directly into a central bank, bypassing traditional lenders.

Government digital currencies

The magazine reported that government digital currencies - known as "govcoins" - represent the new embodiment of money.

It promises to make finance work better, but it also promises to transfer power from individuals to the state, changing the geopolitics and how capital is allocated.

A decade or so ago, amid the bankruptcy of Lehman Brothers, former US Federal Reserve Chairman Paul Volcker complained that the last useful innovation for banks was the ATM, and since the crisis, the industry has improved its level, banks have modernized their faltering systems, and entrepreneurs have done so. Building an experimental world of "decentralized finance", in which Bitcoin is the most popular part, and which contains many codes, databases and channels that interact to varying degrees with traditional finance.

At the same time, financial "platform" companies now have more than 3 billion customers using e-wallets and payment applications.

Besides pay pal, there are other professionals such as Ant Group, Grab, Mercado Pago and established companies such as Visa.

The government or central bank digital currencies represent the next step, but it comes with a problem, which is that it will concentrate power in the hands of the state instead of spreading it across networks or granting it to private monopolies, and the idea behind this is simple: Instead of maintaining an account with a retail bank, you can do so Directly with a central bank through an interface similar to apps like "Alipay" or "Venmo". Instead of writing checks or paying online with a card, you can use central bank tools.

Central banks' transformation from finance aristocrats to their workers may seem far-fetched, but it is under verification, and the more than 50 monetary authorities that account for the bulk of global GDP are exploring digital currencies.

For its part, the Bahamas issued digital currencies, and China introduced its experimental program for the electronic yuan to more than 500 thousand people, and the European Union wants to create a virtual euro by 2025, while Britain launched a working group on a similar project, and the United States - the dominant financial power in The World - In the process of creating a virtual electronic dollar.

China launched its e-yuan pilot program to more than 500,000 people (Getty Images)

Goals and motives

Among the motives of governments and central banks is the fear of losing control, and central banks today are harnessing the banking system to inflate monetary policy, if payments, deposits and loans move from banks to digital worlds run by the private sector, and central banks will struggle to manage the economic cycle and pump money into the system in a time of crisis.

Unsupervised private networks can become a space for fraud and privacy breaches.

Another motivation is the aspiration to establish a better financial system, ideally, where money provides a reliable store of value, a stable unit of account, and an efficient means of payment. Today's money has varying marks, and uninsured depositors can suffer if banks fail.

While Bitcoin is still not widely accepted and credit cards are expensive, government e-currencies will achieve remarkable results because they are guaranteed by the state and use an inexpensive centralized payment center.

Government currencies could reduce operating expenses of the global financial industry, which amounts to more than $ 350 per year for every person on Earth.

And it makes financing available for nearly 1.7 billion people who lack bank accounts, and government digital currencies can also expand government toolkits by allowing them to make instant payments to citizens and lowering interest rates below zero.

The magazine pointed out that unrestricted government digital currencies could quickly become a dominant force in finance, especially if network effects make it difficult for people to withdraw, and these currencies can destabilize banks, because if most people and companies stash their money in central banks will have to Lenders find other sources of financing to support their loans.

If retail banks are unable to finance the business, someone else will have to do lending, which raises the alarming possibility of bureaucrats affecting the allocation of credit, and in the event of a crisis, the digital scramble of savers in the central bank may cause a rush to withdraw bank deposits.

Once on the rise, government digital currencies could be subject to state control to control citizens, and used to impose sanctions, such as instant electronic fines for bad behavior, and could also change the geopolitics by providing a channel for cross-border payments and dollar alternatives;

The reserve currency in the world and the pillar of American influence.

The dominance of the US dollar depends in part on open capital markets and equity in the United States, which China cannot compete with, but also on outdated payment systems, billing agreements, and unemployment.

On the other hand, smaller countries may fear that people will rely on foreign electronic currencies instead of using local money, which may cause destabilization of internal economic conditions.

Financial platform companies now have more than 3 billion customers who use e-wallets and payment applications (Anatolia).

New money, new problems

The magazine pointed out that these vast horizons of opportunities and risks present challenges that are difficult to deal with, and China can limit the size of the electronic yuan and crack down on private platforms such as the "Ant" site;

So open societies should proceed cautiously by capping cryptocurrency accounts.

The magazine stressed the need for governments and financial companies to prepare for a long-term shift in financial operations, which is very important, just like the jump towards coins or payment cards, and this would push for strengthening privacy laws, reforming central bank management methods, and preparing retail banks. To play a more marginal role.

In fact, government digital currencies are the next great experiment in finance, and it promises to be of far more importance than humble ATMs.