Impacts of Digital Fiat Currency on Global Trends

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Impacts of Digital Fiat Currency on Global Trends
Fiat currency or fiat money refers to the currency that a government has declared to be a legal tender and regulated by the Central Bank or similar institutions. The disruptive technologies of the 21st century have led to the emergence of cryptocurrencies that make it possible to make transactions virtually. Bitcoin has survived over a decade despite the naysayers predicting its failure long ago. The difference between digital fiat currency (DFC) and a cryptocurrency such as Bitcoin lies on whether or not it is a legal tender. While DFC is a legal tender and is backed by a government, a cryptocurrency is not supported by a government or a bank. Given the success of cryptocurrencies, several countries such as China, Japan, and Russia are looking to DFC to faciltiate virtual transactions. Some drastic changes to the global trends are imminent with the adoption of DFC, with the traditional financial systems likely to suffer the most impacts. The entire industries and businesses are also going to be overhauled by DFC. New monetary policies will also need to be enacted to help govern the virtual currency.
Impact on the financial sector
* Gigs familiar with Bitcoin will concur with the fact that transactions without the need of the traditional financial systems are possible with a decentralized system. Domestic or cross-border transactions will be much more efficient with the adoption of digital fiat currency, and the transaction cost, usually imposed by banking institutions, will reduce dramatically (Grey 174).
* The current system for cross-border transactions is governed by SWIFT and CHIPS that are highly centralized and DFC is bound to forster decentralization (Dongmin and Shuang 4-5). DFC will lead to a reconstruction of cross-border payment system leading new patterns. China’s Digital Currency Electronic Payment (DCEP), an initiative by the People’s Bank of China is leading the way in DFC is likely to crumble the existing SWIFT and CHIPS systems. According to Birch, China’s DCEP is the most important initiative at the moment in the world of DFC (176). Given the high popupulation of Chinese people outside China, their use of the DCEP will significantly drive its usage and potentially, everyone in the world will use it. Furthermore, China’s Belt and Road Initiative (BRI) is comprised of 80 countries and it can drive the uptake of the country’s DCEP to a great extent (Birch 174).
* Basic financial services offered by financial institutions will be bestowed to the consumer, and large investment corporations will no longer be subject to deposit insurance caps (Grey 175).
* The monopoly that is currently enjoyed by the traditional banks will be no more, further enhancing financial stability (Andolfatto 3).