Question

In: Economics

Is virtual currency something we can trust? Do you think it will be granted as some...

Is virtual currency something we can trust? Do you think it will be granted as some kind of standard currency? (3-4 paragraphs)

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Expert Solution

Virtual currency is digital money or it can also be called digital currency which is not regulated by the central bank of a country. It is stored in a digital form and is not available in a physical structure. Since this currency is not monitored by a legal regulatory agency, trustability in the same depends on the users as the value of the currency is not determined by the legal authority. Bitcoin is one the most popular virtual currencies and the volatility in the rate of the currency is a current example of how extremely unpredictable and unreliable it is, though there are advocates who swear by the potential of the currency for the long term.

There are countries who have not directly accepted the legality of virtual currencies, though they have taken the approach to patiently oversee the proceedings to be unfolded. The downsides are that these currencies are used for transactions transpiring out of illegal activities which are difficult to track. Countries having a strong foundation in technology would be able to adopt the stance on making virtual currencies legal and standardising it where the transactions could be monitored. The United States and Canada are examples of nations having a favourable stance while China and Russia have made it illegal to carry out transactions in the currency.

Counties have not yet put into place precise systems that control the usage of virtual currencies. As they do not come under the purview of central banks, the nature of the currency is unclear with regards to determination of its value such as the exchange rate. Challenge are posed to financial institutions in terms of tax collections, money laundering, unsafe payment system, exchange rate, etc. Institutions need to quickly come up with the way forward to regulate the currency and generate revenue by increasing transparency in the same.


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