Impacts of Virtual Currencies
- Boosts Global Remittances
- Politicizes Money
- Fosters Speculations
- Promotes Global E-commerce
- Challenges Conventional Systems
Currency has not been left behind in the era of technological advancements, but virtual currency is well poised to make paper currency a way of the past. Digital currency, also known as the cryptocurrency, has both positive and negative impacts on the economy. As much as it revolutionizes the way we make payments, it poses a danger to world currencies such as the dollar. Here we look at five ways in which virtual currencies are impacting the global economy.
Boosts Global Remittances
Each year, migrants from developing countries remit more than $500 billion dollars to their families back home. However, the burden is substantial as most international money-transfer agencies charge an average of between 6-10% commission for sending as little as $200. Virtual currency provides for speedy, more affordable money transfer. It makes it possible for the world’s most vulnerable people to send more cash for less. Consequentially, as more money finds its way to these countries, their trade and finance sectors receive a boost as locals gain more spending power.
Politicizes Money
Before virtual currencies, central banks enabled and controlled all monetary transactions, either directly or indirectly. Thanks to cryptocurrencies, the scenario is changing as that power is rapidly shifting to the masses. Unfortunately, for now, there is no credible body to regulate these transactions which provides for large-scale money laundering. And, also, the world central banks are losing revenue. With time, the economic structure will change. Societies or even individuals will be able to challenge the economic power of these previously-revered and established bodies.
Fosters Speculations
The value of cryptocurrencies such as Bitcoin is on a constant fluctuation; it was valued at a little over $100 dollars a couple of years back but now it ranges in the thousands. In an interview with Forbes, renowned entrepreneur Troy Osinoff owes these fluctuations to the lack of a central authority to regulate its worth or number. These highs and lows make it easy for speculation, especially now that trading in Bitcoins is gaining as much traction as trading in shares. While a single Bitcoin costs ten times the price of a single Facebook share, buyers are able to buy it in fractions at a price lower than one-tenth of a dollar cent. Therefore, more people are buying Bitcoins which are easier to predict. This results in unfair speculative gains which have far-reaching negative impacts on the economy.
Promotes Global E-commerce
Fraud is hurting most online businesses as fraudsters come up with more and more ways to steal and fake fraud. The result is that many online merchants are turning away good business in fear of reversals or unfair fines from financial institutions. Virtual currencies not only ease transactions for buyers but also eliminate the risk of fraud because transactions are irreversible. As a result, more vendors are selling their wares online. This promotes global e-commerce. Additionally, the low transaction fees promote small-value transactions or micro-payments. This makes it possible to sell anything however small its value is. The result is that small-scale entrepreneurs can reach global markets without the need for capital finance from financial institutions.
Challenges Conventional Systems
Conventional methods such as Visa require third parties to facilitate the transaction. That means that people need to have a bank account to access them, and still the banks have to authorize the transactions. On the other hand, cryptocurrencies provide for quicker transactions as payments are instant. Also, many people, especially in high-inflation currencies, are storing their money in Bitcoin form. In this way they are able to exchange it for a more stable currency when the need arises.
Concluding Thoughts
As is with any changes that promise a revolution, virtual currencies face a divided audience. Many entrepreneurs see them as a way of expanding their global reach. Governments and financial institutions are apprehensive of the impact of virtual currencies on their credibility and sustainability. All in all, we need to find a way to regulate their existence to promote a fair playing ground for all.
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