The digital currency is coming

We, humans, are essentially social, that is we have the ability and the need to live and interact in society.

back to basics

Money comes from this need for human interactions.

Imagine you live a community back in the old days. What you produced could be relevant to others and what others produced could be proper for you. In order to optimize the community’s resources and time, people trade goods as a way to buy and sell things they needed.

Over time, there was a need of creating a universal ledger so people could trade with others outside their community. Then the gold came!

Soon, trading goods needed financial backing, so that an institution could classify whether the good had value or not. That's why banks started to store gold and circulate paper money in exchange.

no more parity with gold

In the early ’40s, the Bretton Woods Agreement was established in order to determine a new international monetary system.

Under this agreement, gold was the basis for the U.S Dollar and other currencies were pegged to the US Dollar values - and US Dollar became then the new standard for the international monetary system.

The system came to end in 1971 when President Nixon announced that the US would no longer exchange gold for U.S Dollars since, in addition to several complications in the system, there was a great devaluation of North American finances.

With the severance of this system, the current financial model is the fiat money currency, in which no intrinsic value is applied to money, instead of its all based in an agreement between government parties on how much their printed money is worth. The ages of technological development and credit payment created a new dynamic, resources are now based on trust, fiduciary duties were established to ensure the new value of currencies.

just click the button

With the advent of technology, the process became digital — to issue a note, no more ballast is needed and financial institutions just need to press a button and print it.

And the financial system has been improving more and more, with solutions that aim to streamline the customer experience and make the process more efficient and fluid. — a great example are credit cards.

and what is the next step?

Currently, central banks are working on the possibility of implementing digital currencies — of course, right?! they couldn’t be left out!

In Europe, this is already a reality. The European Central Bank (ECB) is working on a central bank digital currency (CBDC) primarily aimed at retail, as opposed to a more “wholesale” digital currency.

According to Yves Mersch, vice chairman of the Committee,

Most of the money issued by central banks are, in fact, already digital, although it is not called digital currency. Currently, access to the central bank balance sheet provides the possibility of access to central bank digital money. What may change in the future is the reach of qualified parties for access to our central bank balance sheets. In fact, this is at the heart of the discussion on CBDCs.

Worldwide, the Bank for International Settlements (BIS) encourages central banks to create their own digital currencies.

For BIS, the issuance of digital currencies would reinforce the role of ensuring the security and integrity of payment systems.

on the upside

In addition to dramatically increasing the security and efficiency of transactions, digital currencies guarantee traceability, thus avoiding issues that have guided our society for a while, such as tax evasion, informal work, and corruption.

on the downside

However, on the other hand, the implementation of digital currencies can have social implications related to the privacy of citizens, since totalitarian governments can use this resource for surveillance purposes.

so…what do you think about this possibility?