Change is in the air; modernizing the financial sector with digital advancement in currency payment is crucial for the sustainability of the banking system.
As new technologies are transforming all industries, so is fintech.
Central banks across the globe are changing their perspective toward payment systems and adopting digital currencies.
Policymakers, private players, and financial institutions are collaborating with the idea of CBDC to revolutionize payment systems and introducing digital currencies in the economic environment for the convenience of business professionals and individuals.
There is a revolution happening in the financial sector that involves modernization both vertically and horizontally. Technology is playing a crucial role in bringing about this change.
The use of peer-to-peer (P2P) money transfer systems with trusted digital currencies issued by each country’s central bank will help to boost the usage of this tech innovation.
Moreover, there are huge possibilities of spreading contagious diseases using fiat money. We have observed that digital currencies helped the global community deal with the pandemic.
There may be competition in front of financial institutions between new technology and existing traditional ones. However, financial institutions need to be proactive and adopt the change.
So Why Digital?
Using digital currencies helps banking systems track and use that tracking data for taxation, finding cybercrimes, money laundering, and terrorism-like activities internationally.
Incorporating blockchain technology-based ledgers or distributed ledger technology (DLT) helps to replace the current transaction system with better tech solutions for better payment systems would help businesses and countries place themselves globally.
Though the counter-arguments seeker focuses on online banking, plastic money, like credit card/debit cards, central banks still need to start printing similar amounts of fiat money. The time has come to switch toward digital currencies and leave behind currency printing.
However, there are threats of cybercrimes, frauds, phishing, and social engineering attacks that threaten and prevent many governments. When creating rules, authorities need to consider the presence of cryptocurrencies and how blockchain technology is improving their security for transactions.
There are n number of individuals who have invested in cryptocurrencies such as Bitcoin, Ethereum, and so on. A report by Finbold (2022) states that around 10.2% of the world’s internet users possess some cryptocurrency.
This is the perfect moment to upgrade the infrastructure of financial institutions and operate differently with better solutions. But to shift towards digital currency, a country must have robust cyber security planning to strengthen the currency and make people believe in the new ecosystem.
Having a dedicated team or organization is crucial for ensuring sustainability, regulation, the circulation of currency, and easy settlements, which can boost confidence and establish trust among the public.
Based on the ADB report 2022, “The Role of Central Bank Digital Currencies in Financial Inclusion, ” CBDC (Central Bank Digital Currency) has become a catch-all term for a range of possible digital currencies.
The adoption of digital currencies will impact a wide range of sectors. They will open the possibility of direct settlement between counterparties, potentially eliminating the need for intermediaries. Payment intermediaries are integrating blockchain technology and collaborating with digital currency issuers to ensure their place in the future international financial system.
DLT and blockchain have the potential to alter traditional currencies and introduce digital currencies fundamentally. These currency operations require robust planning and strategy before entering the financial markets, including import-export banks. Developing trust in people, banking systems, and economies with better regulations and governance frameworks is necessary.