Fintech companies and global advocates for digital currencies are awaiting with bated breath, anxious not to be left behind in a global shift to electronic banking. But is this technology impactful enough to truly take off?
The European Central Bank has completed extensive analysis of a
So, what is digital currency? In short, it would give the public access to a digital form of cash, where the state bank guarantees the value of the money. Digital banknotes would serve as supplements to cash, rather than replacements, and would be stored in a wallet-like app on your smartphone.
Because the “cash” would be stored on a smartphone, you would not be able to misplace or lose it. (If you lost your smartphone, you could log in again by authorizing with your bank.) That’s not to say it wouldn’t be easily transferrable, either – users could quickly send funds, available immediately, to anyone they’d like. In comparison, payments today typically take two days to fully process.
Additionally, digital currency would (in theory) be secure and untraceable, much like cash or cryptocurrencies. This would be done via “electronic fingerprints,” encrypted and accessible only to authorities and preventing fraudsters and opportunistic data mining companies from tracking or tampering with your funds. Unlike cryptocurrencies, however, the value of the tender would remain stable, being backed by a national bank. This would also allow digital currencies additional protection against cyberattacks, as banking security infrastructure would protect the flow and exchange of electronic cash.
Finally, this change would transform payment processing on the backend, streamlining the process of exchanging currencies and accepting payments. This would be nothing short of revolutionary for the globalized e-commerce industry. As more companies move online consumers and merchants alike would benefit from these added efficiencies.
Public appetite and need are not quite tipping the scale against the herculean effort needed to develop, implement, and monitor a digital currency. Quite simply, the potential impact of a digital currency on consumers is not powerful enough to ignite a movement or spur quick action. Because a digital currency would primarily change the back-end of payment processing, consumers won’t see the transformative effect of the technology and understand its gravity. On banking apps, the interface might even appear virtually the same as a debit account.
The infrastructure needed to roll out a new currency is staggering. Not only would regulators need to develop a complex legal framework, but they would also need to build up impenetrable fraud prevention and cybersecurity to prevent devastating hacks. Confidence in its security will be an essential component to build public trust in the technology.
Finally, and perhaps most importantly, are considerations for the “unbanked” or “underbanked” community and especially those without access to a smartphone and/or wireless network. If businesses were to implement “no physical cash” policies, many would have no ability to make a purchase. To circumnavigate that issue, we need to ensure that underbanked populations can easily locate and access facilities with cellular or internet services, implementing an offline “store and forward” option until cellular service is available.
I look forward to seeing digital currencies brighten up our antiquated banking infrastructure and embrace the global move toward e-commerce. For now I’m not holding my breath.
