Will society give up paper money? In what ways is cash worse than cryptocurrencies, and in what cases will it be defeated by the digital yuan?
Not in the near term, but within 10 to 15 years, digital currencies will completely replace paper money.
In the long term, massive changes in trade and finance will lead to a cashless society very quickly. Digital currencies such as China’s central bank’s DC/EP will completely replace cash.
Is giving up cash real?
Digital payment systems are not only being developed in China. For example, in November 2020, European Commission Vice-President Valdis Dombrovskis announced that the European Union plans to roll out an integrated digital system by the end of 2021. This will help solve the problem of cash refusal for EU citizens.
It is highly unlikely that paper money will be completely replaced in such a short period of time. Digital currencies will dominate major cities around the world and countries with developed IT infrastructure. But the penetration of new technologies has not had time to cover the entire world, especially the rural populations that, even today, sometimes depend on natural exchanges.
If you are moving away from paper cash, the forecast can still be said to be realistic. Already today, rumors about the pandemic risks of paper money have led many people to almost give up cash during self-isolation, using cards and online transfers. But so far we can only talk about the replacement of cash fiat with non-cash fiat.
Many say the complete replacement of cash will only happen if anonymous digital alternatives with relatively stable exchange rates become available. This has its challenges, but most cryptocurrencies are highly volatile and only a few remain anonymous. In the case of stablecoins, they are typically enterprise projects that are not centralized or anonymous.
It is said that the first countries to move away from the traditional fiat currency system in the future will be countries on the African continent. They are suffering from rapid inflation. Clusters have already appeared in Africa. Despite outdated mobile technology and weak financial infrastructure, residents are turning to digital lending and non-cash payments.
Digital currencies issued by central banks have advantages over Bitcoin and other coins. First, domestic cryptocurrencies have more stable exchange rates. Second, while regulated by the state, the launch of Bitcoin and Ethereum is determined by “algorithms and miners.”
There are other opinions as well. Digital national currencies have important drawbacks. In other words, it has absolute control over the financial transactions of all countries. But it can also help fight corruption.
The downside of cryptocurrency is that it opens up criminal schemes. As money becomes more digital, there are more ways to cheat and steal.
Additionally, cryptocurrencies are, in most cases, less convenient for retail users than fiat currencies. Fiat currency not only has a more stable exchange rate, but also has greater legal protection.
However, cryptocurrencies offer a great opportunity for capital accumulation due to multi-year price appreciation as the number of users increases. Another feature is seamless cross-border payments.
Digital currency bank for Bitcoin
The national digital currency can be said to be a competitor to Bitcoin and other coins. Cryptocurrencies still have serious drawbacks. For example, high risks due to exchange rate fluctuations, high deposit and withdrawal fees, involvement in criminal schemes, and low penetration rates globally. For this reason, ordinary users can choose digital payment systems developed by central banks.
If people prefer trustworthiness and find government intervention undesirable, they will use government currencies, i.e. decentralized cryptocurrencies. However, for full global acceptance as a payment method, it is desirable to combine anonymity, exchange rate stability, and decentralization.
Digitalization will occur gradually
Experts agree that digital currencies will gradually replace traditional currencies. However, it is still too early to say that banknotes will be completely replaced within 10 to 15 years. Perhaps this will only affect large cities and developed countries. At the same time, the digitalization of payment systems may occur in developing African countries suffering from inflation. Moreover, Bitcoin is currently in great demand.
Central bank-issued digital currencies are unlikely to compete with Bitcoin, only if they offer a new, competitive product. Otherwise, there will continue to be demand for cryptocurrencies because they offer a degree of independence from the state. It still has some drawbacks, including high price volatility, weak legal protection for users, and low penetration.
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LATOKEN Cryptocurrency Exchange does not provide investment, tax, legal or accounting advice. This article has been written for informational purposes only. Like any other asset, cryptocurrencies are subject to market risk. Please do your own research and transact with caution.