Lately, cryptocurrency was starting to shape up as better value for money than traditional fiat currencies (government-issued currency), that is until it dropped about 50 percent last month in May 2021.
But amid the rush to altcoins, it’s clear, to me at least, that fiat currencies (soon digital fiat currencies) are here to stay, backed as they are by countries’ economies and guided by monetary policies. For these very solid reasons they remain the safer option to bet on for investors.
Taking into account all the benefits of crypto and blockchain technology, they still lack the massive infrastructure of fiat currencies which they need to become the chosen currency for mass consumers worldwide.
Global currency
The USD is the best known example of a fiat currency, which maintains its global currency dominance thanks to the main commodities being traded in USD, this give the US a reserve status.
Almost everyone around the world knows the worth of a USD bill and in contrast the same thing can’t be said for most cryptocurrencies as their volatility can cause it to crash in any given moment by a tremendous percentage. This is because cryptocurrency shifts with speculation, international regulation uncertainties and now tweets.
Added to this, while blockchain technology is supposed to offer security we’ve seen major hacks targeting crypto companies which, due to the decentralised and encrypted nature of altcoins, those attacks are almost impossible to trace. This scares off mass consumers and will keep them watching from the sidelines.
Another barrier, for me, is that most cryptocurrency is created by tech developers and not by financial institutions, and so mass consumers are yet to understand the complex technology driving the likes of bitcoin, unlike fiat currency with its traditional banking infrastructure.
However, we need to acknowledge technological change that is happening and the financial system has no choice but to adapt to it. It’s noteworthy that blockchain technology has received great attention from the private sector, financial sector and most importantly governments, its adoption will increase efficiency in transactions and activities across various fields at a much reduced operational costs.
The USD is the best known example of a fiat currency, which maintains its global currency dominance thanks to the main commodities being traded in USD
The role of central banks
However, it’s generally accepted that central banks remain the authority which provides a sense of trust to the public. These institutions initially had a cautious view of the new technology but with time they have started to change their view, working themselves on developing new systems based on this evolution.
This created the new wave of digital fiat currency, or officially known as Central Bank Digital Currency (CBDC), which will represent each nation’s fiat currency and have the same value of a physical paper bill.
CBDC is no longer just a vision as we’ve seen solid steps from several central banks around the world which have started working on their version of digital currency.
One factor driving this is a desire not to leave the cryptocurrency arena controlled by private institutions, which will weaken central banks’ control over monetary resources and cause economic instability. Also, the current altcoin arena is currently viewed by many as an ideal hub for criminal activities such as money laundering and terrorism financing.
A CBDC utilises technology to represent a country’s currency in digital form
Cambodia and China are among the central banks leading this, and we are seeing more in this space from the European Union and the United Kingdom. This will combine the advanced technology in cryptocurrency with the regulation of the central bank.
Hopefully, this centralised regulated digital currency will take the spotlight away from decentralised cryptocurrencies and insure world economic stability and cleaning up the platform’s image as a space for ‘dark web’ activities.
Furthermore, CBDC will enable people to deposit their money directly into central banks bypassing traditional banking systems, eliminating intermediaries and the costs borne by the consumers.
Another major advantage is the security of funds, an upgrade on the current banking system in which you could lose your savings if a bank fails as the central banks guarantee a limited amount. Thus, fiat currency are here to stay but maybe, hopefully, in a digital form.
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by Staff Writer
More of this topic
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Fares El Zaemey argues that fiat currencies – traditional government-issued currencies – will keep their place in the evolving financial landscape
Fares El-Zaemey senior dealer with Delma Exchange
Lately, cryptocurrency was starting to shape up as better value for money than traditional fiat currencies (government-issued currency), that is until it dropped about 50 percent last month in May 2021.
But amid the rush to altcoins, it’s clear, to me at least, that fiat currencies (soon digital fiat currencies) are here to stay, backed as they are by countries’ economies and guided by monetary policies. For these very solid reasons they remain the safer option to bet on for investors.
Taking into account all the benefits of crypto and blockchain technology, they still lack the massive infrastructure of fiat currencies which they need to become the chosen currency for mass consumers worldwide.
Global currency
The USD is the best known example of a fiat currency, which maintains its global currency dominance thanks to the main commodities being traded in USD, this give the US a reserve status.
Almost everyone around the world knows the worth of a USD bill and in contrast the same thing can’t be said for most cryptocurrencies as their volatility can cause it to crash in any given moment by a tremendous percentage. This is because cryptocurrency shifts with speculation, international regulation uncertainties and now tweets.
Added to this, while blockchain technology is supposed to offer security we’ve seen major hacks targeting crypto companies which, due to the decentralised and encrypted nature of altcoins, those attacks are almost impossible to trace. This scares off mass consumers and will keep them watching from the sidelines.
Another barrier, for me, is that most cryptocurrency is created by tech developers and not by financial institutions, and so mass consumers are yet to understand the complex technology driving the likes of bitcoin, unlike fiat currency with its traditional banking infrastructure.
However, we need to acknowledge technological change that is happening and the financial system has no choice but to adapt to it. It’s noteworthy that blockchain technology has received great attention from the private sector, financial sector and most importantly governments, its adoption will increase efficiency in transactions and activities across various fields at a much reduced operational costs.
The role of central banks
However, it’s generally accepted that central banks remain the authority which provides a sense of trust to the public. These institutions initially had a cautious view of the new technology but with time they have started to change their view, working themselves on developing new systems based on this evolution.
This created the new wave of digital fiat currency, or officially known as Central Bank Digital Currency (CBDC), which will represent each nation’s fiat currency and have the same value of a physical paper bill.
CBDC is no longer just a vision as we’ve seen solid steps from several central banks around the world which have started working on their version of digital currency.
One factor driving this is a desire not to leave the cryptocurrency arena controlled by private institutions, which will weaken central banks’ control over monetary resources and cause economic instability. Also, the current altcoin arena is currently viewed by many as an ideal hub for criminal activities such as money laundering and terrorism financing.
Cambodia and China are among the central banks leading this, and we are seeing more in this space from the European Union and the United Kingdom. This will combine the advanced technology in cryptocurrency with the regulation of the central bank.
Hopefully, this centralised regulated digital currency will take the spotlight away from decentralised cryptocurrencies and insure world economic stability and cleaning up the platform’s image as a space for ‘dark web’ activities.
Furthermore, CBDC will enable people to deposit their money directly into central banks bypassing traditional banking systems, eliminating intermediaries and the costs borne by the consumers.
Another major advantage is the security of funds, an upgrade on the current banking system in which you could lose your savings if a bank fails as the central banks guarantee a limited amount. Thus, fiat currency are here to stay but maybe, hopefully, in a digital form.
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