Central banks around the world are considering the introduction of their own digital currencies. While China has already introduced digital currency with the E-Yuan, the US and Europe are still discussing the introduction. This currency revolution brings both advantages and disadvantages, and it is important to understand what it means for consumers. The worldwide trend towards cashless transactions is likely to have accelerated after the pandemic. Although a high percentage of transactions are still carried out in cash, there has been an increasing trend towards cashless transactions in most countries in recent years. This poses a challenge for central banks, as cryptocurrencies like Bitcoin or fintech products like the Swedish Swish app are increasingly taking over their functions.
Several major central banks are currently considering the introduction of their own digital currencies. China is already experimenting with a digital Yuan, the so-called E-Yuan, which can already be traded in Germany. The US Federal Reserve and Congress are also considering a digital dollar, and the European Central Bank seems to be interested in creating such a currency. A digital currency would make banks completely unnecessary for transactions, as only a digital wallet would be required to store the currency. This internet-based approach would reduce the barriers to owning an account and enable more people to access formal financial services.
However, the idea of a digital currency is not popular with commercial banks. There are also concerns that a parallel payment system could emerge, which would not be subject to central bank supervision. The decentralization and volatility of digital currencies differ significantly from the approach of central banks. Nevertheless, it is likely that central banks will use blockchain technology, as cryptocurrencies have already successfully implemented it. Depending on the specific design of the digital currency, central banks could effectively take on the role of a commercial bank, where savings would be deposited directly. This idea is welcomed by critics of the banking system, but the impact of such a transformation on the financial sector is difficult to predict.
