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Why Are Countries Producing Digital Currencies?

Why Are Countries Producing Digital Currencies?
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As you probably know, digital currencies or crypto-currencies’ days as hype are mostly behind them. Nowadays, they’re gaining acceptance everywhere even when considering their high volatility. This is in no small part thanks to major companies such as VISA enabling crypto payments.

One of the most criticised issues of cryptocurrencies (besides volatility) is the security risks inherent to the system. It includes people losing large amounts of money thanks to hacking. There are also not-so-secure methods of storing these digital assets.

Because of the disruptive nature of cryptocurrencies, governments are stepping up and developing their own. There are many reasons for this, and here we’ll explore a few.

Staying Relevant

Up to this point, people need to transact with government-emitted money. If you live in a certain country, you need to use that country’s official currency for most of the transactions. What happens if everyone ditches their national currencies and starts using non-centralised ones instead?

Whether it would be a utopia or a dystopia is up for debate. However, any government’s power would be seriously reduced. It might make normal currencies look outdated or irrelevant, something governments can’t afford.

Security for Online Payment Methods at Your Favourite Online Casino

One of the most important issues when it comes to decentralised cryptocurrencies is that many aren’t backed by anything. However, Central Bank Digital Currencies (CBDCs for short) are pegged to the national currency. It means they’re as volatile as the fiat currency in question, making it much safer.

This can impact heavily when paying online in digital stores, applying for digital services or gambling in online casinos. For instance, there are many casinos accepting Entropay payment method but not all of them offer cryptocurrency payments.

CBDCs would change that because they would be the safest digital asset available. it’s expectable that a much larger size of e-commerce, online casinos and services would accept them.

If that happens, it’ll arguably be the most secure online payment method because there would be no credit or liquidity risks associated. It’s also more transparent since the flow of money can be tracked.

A Backup for Cash

It’s not clear yet whether CBDCs intend to completely replace cash or coexist along it. However, one of the uses for governments that intend to release CBDCs is fostering the resilience of the financial system.

For instance, if a natural disaster occurs or there’s a widespread crash that prevents you from using cash, CBDCs could offer a solution. This requires a lot of investment because the technology needs to be deployed on a massive scale. When it’s finally done, these assets could provide another way to make transactions in critical situations.

Allowing Inclusion

There are 1.7 billion adults in the world today that don’t have a bank account. This is an important factor to resolve when it comes to reducing global poverty. CBDCs would improve access to digital services for many and enlarge the digital economy, making way for more people to transact without cash.

There are also some arguments against this. One of the most critical ones is that the reason people don’t have bank accounts is not that they don’t want to. It’s many times because they don’t fulfil the criteria to open an account. This can be because of their residency status, economic conditions, or other factors.

Using CBDCs would require the purchase and maintenance of devices that low-income people wouldn’t be able to afford, which raises the question of how governments of the world will circumvent this problem.

One of the solutions would be for governments to hand devices for free, including maintenance costs such as connectivity and assistance when they break down.

Are CBDCs Coming Soon?

CBDCs are already here in some countries that worked as a proof-of-concept. For example, the Sand Dollar was introduced in the Bahamas, and Jamaica also released its cryptocurrency called JAM-DEX.

While many countries are on track to deploy their CBDCs, there are still many challenges, not only technological but also when it comes to the people adopting them.

For example, in Ecuador, the digital currency project was cancelled after three unsuccessful years of its release in 2017. One of the reasons for this is the low trust people have in central banks in general, which is more pronounced in certain continents such as South America.

There’s also the need for a strong legal framework for their usage, something that requires a lot of time to develop and enforce.

Summing up, nobody knows whether CBDCs will be here to stay, but they’re certainly coming everywhere. Only time will tell if they will succeed in defeating the many challenges they have.

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