• By PYMNTS

Digital Currency: the future is now!

We are currently living in a truly transformational time when it comes to the digitization of currency and transition from a physical cash society. The past few years have seen crypto currency like Bitcoin introduced to the world, and go on an unprecedented bull run, making a lot of early speculators multi-millionaires overnight as the price shot up (only to hit a bubble and start to decline in value shortly after).

More recently, digital currency has been touted by the United States Democratic Party as a medium for which to pay government bailout funds to people and businesses who are affected by Covid-19. The proposal was included as a provision in an early draft of a sweeping Coronavirus stimulus bill, but ultimately got shot down when it did not rally enough support behind it. The United States, however, is not the only country currently looking at adopting a digital currency. At this time, China is developing a digital Yuan, and France’s central bank is doing trial runs of a digital Euro.

Things are actually not all that bleak for digital currency, however. Would you believe it if I told you that already, almost 90% of the US Dollar is digital?

No, that is not a typo. You read correctly. Forbes pegs the amount of paper cash in circulation in the United States to be at $1.75 trillion as of February 2020. (The full article can be found here: https://bit.ly/3ckZQNr) Now, $1.75 trillion might seem like an awful lot, but when we examine the overall total money supply, which is managed by the Federal Reserve- we see there is actually over $15 trillion dollars sitting in bank deposits, funds, and cash equivalents. Essentially, the western word- including Canada and the US- has been operating under a fractional reserve banking system for some time now. How this works: you might go to your local bank branch with $100 to deposit in your account. The teller takes your deposit of $100. Later in the day, a small business owner comes into the bank seeking a loan, and the bank gives them that same $100; however this time, the bank is charging interest on that money, and the principal plus the interest sums are added onto their computer system. The bank has just essentially created new money out of thin air- money that is digital and not linked to any physical cash. This example shows you essentially how banks have been creating large profitability and economic growth for hundreds of years- ultimately resulting in a 9:1 imbalance of digital to physical cash. Outside the US, only 8% of currencies exist as physical money globally.

What could the coming years look like for consumers as we transition away from physical cash?

According to Fintech Futures- by 2025, expect to see digital currency play an enormous role in online bill payments and transactions- with customers paying for anything and everything through their smartphones- which can be accessed by scanning the user’s face. These digital payment platforms will eventually eclipse current payment systems. Also by 2025, expect Facebook to command a greater presence in the space; having launched their stablecoin Libra platform. (Stablecoins are defined as being backed by tangible assets like gold or US Dollars. The biggest stablecoin right now is Tether, which is worth over $4 billion.)

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