Economic crises shake the foundations of any nation. With the emergence of cryptocurrencies and digital money a new window opened to find possible solutions to the States.
Many Latin American economies face devaluations of their own currencies for different reasons. Just look at the collapse in the price of the Venezuelan bolivar just to cite a specific example in the region. However, this local currency has not been the only one that has experienced declines in value.
Now, the explosion of the world of digital currencies has been so strong and the value of Bitcoin has been so high that now governments have begun to think about digital money, in this sense it is valid to point out that, when using Cryptocurrencies to fight inflation, you should bet on those that have a predetermined generation algorithm.
Digital currencies in the States
For some time, governments of different countries have been announcing the intention of incorporating digital currencies created by them into their economies.
Assuming that these digital currencies are inspired by Bitcoin and other cryptocurrencies, we can interpret that they will work in a similar way. In any case, we can observe that not only Venezuela but other countries such as Sweden, China, Estonia, Russia, among others, are pointing in that direction, as well as, the European Central Bank is discussing whether or not to incorporate its own cryptocurrency.
So what would be the reasons that a country could have in creating its own cryptocurrency?
Reduce the use of paper money
In my opinion, there could be great advantages for governments in creating their own cryptocurrency. The first thing that comes to mind is to decrease the use of banknote paper, which is expensive to create, maintain, circulate, and protect.
It is faster and easier to create a cryptocurrency wallet than to open a bank account. To create a wallet, only one identification is needed and this would allow more people to be included in the economic system. The execution of transfers are much faster and more efficient than those of banks.
The system promotes transparency and unique records. The decentralized ledger or ledger allows you to freely access it, at any time, to verify cryptocurrency transactions that have been recorded and cannot be modified.
The transactions made by these systems are safe because they cannot be reversed; They can only be refunded by the person receiving the payment. Bitcoin can detect typographical errors and will normally not allow you to send money by mistake to an invalid address.
Secure International Transactions
It facilitates international transactions. The respect that Blockchain technology has earned from technological and financial companies, has made it possible for companies, financial institutions or people of different nationalities to operate and make electronic payments with the same virtual currency.
Transformation for sending remittances
The important technological and telecommunications advances transformed the sending of remittances, from a market that used money orders, to the current one dominated by electronic transfers, which reduce costs and time and reach remote and hard-to-reach areas.
Cryptocurrencies allow access to the network to 4 billion people who have no possibility of operating with banks, credit cards or other means of payment and need to make remittances, export and import goods, etc. Thus, they can operate through the internet or a mobile application to make those electronic payments and other operations.
A step towards the future
New forms of digital money are “reducing the importance of cash.” In addition, some central banks are interested in using technology to reach hundreds of millions of people who do not have a bank account or access to modern financial services. Finally, most central banks believe that replacing physical tickets with digital ones would save money.
Bitcoin has been successful because it is a decentralized network and has proven to be strong as a technology over time despite its volatility. On the other hand, governments have the strength to impose the use of their cryptocurrencies and therefore we could see their rapid adoption. Only time will tell if they are sustainable over time and what position Bitcoin will occupy in this scenario.
New payment technologies, including cryptocurrencies, are changing the global financial system, and central banks must understand how it will affect them. In short, new technologies will transform the financial system regardless of whether central banks are prepared or not.