Question

What are potential benefits and challenges of digital currencies and should Central Banks introduce such a currency?(maybe include Charts, figures, graphs, something finding from data and website, 550 words to be detailed, thanks)

Answer 1

With the advancing age towards the digitization , the whole global economy is moving towards the era of digitization. While the mode of physical mode of exchange (cash ) is losing its popularity day by day, millennial s are preferring a digital mode to transact for all the financial needs .

As such digital currencies are one of the options to promote this digital payment ecosystem , where a number of active player are taking part in.

With the increase globalization in the world economy , the flow of funds needs to be faster smoother and seamless across the barriers in order to have a holistic growth in all aspects

The Advantages and Disadvantages are as follows :

No	Advantages	Description
1	Faster seamless transactions	· The transactions are peer to peer based and fast · Almost nil changes of txn failures
2	Ease of cross border txn	· Funds can be transferred to any geographical location in the world . · Dons’ t depend on the local regulation of the are
3	High liquidity	· The currency is traded in an active secondary market and hence have very high liquidity
4	Inflation proof	· The currency is fully inflation proof
5	Least txn fees and agency charges	· Almost nil transaction fees are charged by the exchanges
6	Decentralized unit	· The currency is not regulated by any central government · The monetary flexibility is thus high
7	Universal acceptance	· Accepted almost anywhere in the world . · There are no need to have an exchange rate to convert to local regional currency
8	Blockchain based asset class	· The digital currencies are backed by block chain based txn. · Hence all the txns are recorded in the block chain ledger
9	Accessible	· Accessible in any mobile or web based platforms

No	Disadvantages	Description
	Use for Unauthorized / Illegal purposes	· Any compromise of the secure credential may lead to the unauthorized use of these digital assists
	Cyber-security	· Problems related to security as these assets ado not have any physical presence .
	Not regulated	· Not regulated by any central government . · As such any failure in the system would not be backed by the government
	Extreme Volatility and price fluctuations	· The price is highly volatile as these are actively traded in secondary market · Exchange rates between inter currency is fluctuating too
	The Source of funds trace is difficult	· The original source of the funds are difficult to trace
	Theft from digital storage	· Hackers may steal these digital assets from cold storage based a wallets too

View of Govt on digital currencies

It is difficult for the govt of a country to legalize these forms of digital currencies in the economy

· Central govt controls the flow of money supply in the economy .

· If the decentralized currency is made an completely acceptable mode off the acceptance , the economy would go complete unregulated

· These may impact the actual currency and the monetary stability of a country

A few of the developing countries like Venezuela government has approved Petroo a govt backed digital currency . But for most of the developed nations it is still a challenge in the way to promote a completely unrelated currency as a means of exchange