For the most part, digital currencies could scale down the power of the United States sanctions and the right of the U.S. Treasury to control prohibited financial flows. One of the biggest American banks, JP Morgan Chase provided a brand new report where the American dollar has come face to face with a big challenge while more and more central banks’ digital currencies find support.
Many analysts, Josh Younger and Michael Feroli are definitely among them wrote and in-depth report, where they expressed a fear that the United States of America has more to lose from wrecking potential of digital currency than any other country around the globe. This situation mainly connected with U.S. dollar superiority. While the USA issues medium of exchange for global trade and the world reserve currency in goods, commodities, and services this may create many advantages.
Eric Rosenbach and Aditi Kumar wrote down an opinion piece for global magazine Foreign Affairs where they said that America’s great rival China has become the first main economy to test a digital currency as a national version. A wild combination of China’s advanced electronic payment systems and China’s digital currency (yuan) may give a certain foundation for future power than it even can expect.
The U.S. dollar is threatened by central banks digital currencies
Even though many experts do not think that the American dollar is going to be stripped of the title of reserve currency in the foreseeable future, there is always a risk that the U.S. dollar can become weaker. The reason for such shifts lies in the SWIFT system and the processing of trade settlement. These two aspects could endanger the U.S. dollar.
Glen Goodman, a well-known financial writer, and trading experienced hand who makes himself a name by skillfully working with the stock market over the course of 2008 world financial crisis and has been carefully following the advancement of digital currencies from the central bank. This professional carefully reminds us of the threat to the U.S. dollar world supremacy is even bigger than we major banks suggest.
The well-known American bank added to this statement that if we talk about a solution for cross-border payment connected with the digital dollar than it should build in a way that it has minimal disruptive power for the domestic financial system. Only then such a solution can turn into a decent investment to save the main means to project its power in the world economy. For wealthy countries and the United States especially, digital currency is a kind of training in geopolitical risk management.
Jerome Powell, the Chairman of Federal Reserve, mentioned some months ago that Federal Reserve is taking seriously all the issues that are related to digital currencies.
What you should know about digital currencies
Digital currency is a type of currency that exists only in electronic or digital form, and never in physical form. Some people call it electronic money, cybercash, digital money, or electronic currency.
Digital currencies always stay impalpable and can be earned and transacted through specific electronic wallets or computers that have a connection with the Internet or other single-purpose networks. As a comparison, physical currencies like minted coins or paper banknotes, are quite material and all transactions can be conducted only by their owners.
Like any paper currency, digital currencies are used to buy various goods and pay for different services. The only issue is that digital currencies have certain restrictions among specific online communities like gambling portals, gaming sites, social networks, etc.
Moreover, digital currencies posses all inherent properties from fiat currencies. They permit quick transactions that can be done with no issues across various borders when they are connected to certain networks or devices.
For example, there is a possibility for Americans to pay in digital currencies to a distant second party that is located in Singapore. However, both parties need to have a connection to the very same network to transact the digital currency successfully.
Electronic currencies provide their owners many advantages. All payments are made with no third-party and directly between two parties. Moreover, payments are immediate and cost-effective. You can compare it to the classic payment methods that have clearinghouses and banks. Besides, electronic transactions based on digital currencies implement transparency in transactions and proper record keeping.
The main difference between Digital, Crypto, and Virtual Currencies
It is a fact that digital currencies have many variants, thus, they are considered as a superset of cryptocurrencies and virtual currencies.
These currencies can be issued by a central bank of a certain country in a strict and controlled form. Such a notion is called the Central Bank Digital Currency or shortly CBDC. For now, such currencies live only in a certain abstract form. Although there are countries like Sweden, England, and Uruguay who study plan to launch a digital variant of their national paper currencies.
A digital currency can also exist in an uncontrolled form. In this case, it is called a virtual currency. As a rule, instead of a centralized controller, it is managed by a certain founding organization, currency developers, or strict network protocol. Among such currencies are monetary systems with coupons or rewards and cryptocurrencies.
A cryptocurrency is also a digital currency that makes use of cryptography to protect and verify all transactions and control the development of new units of currencies. Among the most popular cryptocurrencies are bitcoin and ethereum.