By Dr. Parul Grover Mahajan, Assistant Professor, School of Commerce, SVKM’s NMIMS Deemed to be University, Chandigarh Campus
Digital currency has become a revolutionary force in the constantly changing financial world, changing our perception of and interactions with money. Digital currencies, such as Bitcoin, which debuted in 2009, and central bank digital currencies (CBDCs), which have proliferated recently, have the potential to completely transform the financial industry.
Bitcoin, the forerunner of cryptocurrencies, popularised the idea of a peer-to-peer, decentralised digital currency running on a blockchain. The distributed ledger system known as blockchain guarantees the immutability, security, and transparency of transactions. Thousands of other cryptocurrencies have since arisen, each with special characteristics and applications. Compared to conventional currencies, cryptocurrencies have a number of benefits. They remove middlemen, speed up and lower the cost of cross-border transactions, and provide access to banking to the unbanked population. However, they require a balance between innovation and risk mitigation due to their volatile nature and regulatory uncertainties.
The potential of digital money to promote financial inclusion is among its most intriguing features. Digital currencies can give people a safe and convenient way to interact with the financial system, particularly in areas that lack banking infrastructure. Mobile devices develop as effective instruments for digital asset management, filling the gap between traditional financial services and the unbanked.
Globally, governments and central banks are exploring the creation of digital versions of their national currencies, or CBDCs. CBDCs are issued by the government and are centralised, in contrast to decentralised cryptocurrencies. Their goal is to bring together the advantages of digital currencies with the security and legal protection of conventional fiat currencies. CBDCs can lessen reliance on real currency, simplify financial transactions, and improve the effectiveness of monetary policy.
The increasing significance of digital currencies brings with it problems and regulatory implications. Global regulatory organisations are finding it difficult to manage this quickly changing industry while maintaining financial stability, protecting consumers, and encouraging innovation. Strong cybersecurity measures are essential to protect the digital assets and ensure the integrity of financial transactions from threats like hacking and frauds.
To conclude, digital currency signifies a fundamental change in the way we think about and use money. Through centrally issued CBDCs or decentralised cryptocurrencies, the financial environment is shifting in the direction of a digital-first paradigm. The potential advantages of financial inclusion, efficiency, and innovation place digital currency as a driving force reshaping the financial industry, even in the face of ongoing obstacles and regulatory concerns. The use of digital currency in finance is revolutionary.
