THE FUTURE OF MONEY
By Rolando Polanco
Digital money has been in the process of development for decades now. New technologies aim to democratize finance and expand access to financial products and services. One of the main objectives is to substantially reduce instant payments, both national and international.
However, not all forms of digital money will prove viable. Cryptocurrencies like Bitcoin have not thrived as money. While they are actively traded and subject to much speculation, their prices are decoupled from any underlying economic value.
Stablecoins are designed to moderate volatility, but many have proven to be anything but stable and depend on the quality of the reserve assets that support them.
The KEY is REGULATION.
IMF advocates the adoption of global rules to impose order in markets and create a safe space for innovation.
Meanwhile, central banks are considering their digital currencies. The head of the Bank for International Settlements, Agustín Carstens, and a group of co-authors have indicated that central banks should take advantage of the technological innovations offered by crypto assets and at the same time generate the necessary trust base. Privacy and cybersecurity risks can be managed with central bank digital currencies that can be prudently designed. As is already known, new technologies bring with them new forms of money, such as digital currencies, known worldwide as CBDC (Central Bank Digital Currency) which work in a similar way to cash. It should be noted that CBDCs are different from cryptocurrencies, as the latter are not backed by a central bank or monetary authority that ensures their value and regulates their market, but their price varies depending on changes in supply and demand, something that is not the case with CBDCs, as they will always depend on the central bank.
In the face of advancing technology, central banks are looking for ways to issue their digital currencies to respond to changes in people's payment preferences, and thus be able to offer a digital means of payment that is safe and accessible to reduce the number of digital scams that are already well known
For example, the digital euro
The European Central Bank (ECB) in 2021 decided to launch the project of a digital euro. The ECB is currently during preparations for its possible issuance as an electronic cash equivalent, which would offer an additional option that would complement banknotes and coins without replacing them at the initial phase.
How do we see how would work?
Probably you would have to open a digital euro account through a bank or directly through the ECB linking it with your commercial bank IF you WISH, it could be deposited directly with cash (Through a Bank and/or agent network including ATMs) or with money that you have available in another account linked to the wallet or virtual account. Thus, payments can be made through the wallet without the need to load it with funds beforehand as long as there are sufficient funds in the linked bank account.
Similarly, and to avoid any potential risk to financial stability due to the introduction of the digital euro, the Eurosystem plans to limit the amount of digital euros that we will be able to hold in our portfolio. Likewise, digital euro holdings would not be remunerated in any way.
It is still too early to elucidate how the digital landscape will evolve. But if the right policies are combined with good regulatory decisions, it is possible to imagine a future in which government currencies and currencies backed by private assets coexist securely in the digital wallets of billions of people.
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