In the cryptocurrency world, there have been talks about merging cryptocurrencies with modern financial instruments. There are software firms that have devised ways to make this happen. If this does happen, it can boost the value of national currencies. However, financial institutions stand to lose the most as their authority is undermined when cryptocurrencies prosper.
The new breed of national currencies will feature an interesting fintech creation, which is cryptocurrencies. Consequently, this national currency will also be supported by the actual output of the nation’s industries. There are several benefits to creating a network of national cryptocurrencies. Firstly, this results in a natural interest rate which reflects the actual market conditions. Secondly, it promotes stability within the national currency.
If done right, two of these things combined will be a better currency compared to Bitcoin. It can be argued that the new system can function better than the fiat currency. Going further into the analysis, this new breed of national currencies can also bring forth an area where there is zero inflation. As this concept is very new in the market, some people may feel uncomfortable discussing it. However, experts believe that having discussions beforehand is essential to prepare the nation for change.
People find it difficult to understand
One of the largest obstacles related to bringing this idea mainstream is that people have difficulty understanding the idea behind it. If this network of cryptocurrencies comes to life, individuals will simply have to swipe their debit card, and it won’t be any different than the experience that they have now with credit or debit cards. On the surface, it will work just like any simple monetary system. However, behind the scenes, something completely different happens.
Complexities arise because it’s more difficult to create a stable value and a natural interest rate using this new breed of national currencies. Under the proposed system, the network of currencies will be backed using assets. Then, they will be traded on the blockchain. The economy will then be driven by a blockchain, which incorporates the use of smart contracts. Moreover, the usage of smart contract enables automated trading, which decreases transaction times and reduces the possibility of fraud.
There are three asset types that are proposed to be merged with cryptocurrency tokens. Firstly, these will be the shares which represent ownership. Secondly, it will be backed by the inventory of the company. Lastly, central banks can create a third currency which is backed by a specific kind of future. An important thing to note about the third currency is it has to have an extremely stable value.
Role of the traditional banking industry
The traditional banking industry will play an important role in enabling this network of cryptocurrencies to occur. This is because they have to facilitate the debt, adjust the size of the money supply and finance new ventures. Therefore, banks will work hand-in-hand with the government to create a national cryptocurrency system.
What’s in it for banks?
It’s difficult to imagine why central banks will want to adopt cryptocurrencies in their system. At least not willingly. It also seems like a far-fetched idea, but surprisingly there are already some central banks that are testing out blockchain in their infrastructure. In fact, central banks who have been suspected of foul play have been testing out the technology to improve their reputation.
For instance, banks in Ukraine and Venezuela who have been accused of corruption have taken the first steps to adopt cryptocurrencies. England and Canada are also interested in the central bank of digital currencies.
Consumers may criticise central banks for being very slow in making a decision. This is because every action that a bank takes has large implications for its users. Therefore, as banks are learning more about new cryptocurrency systems, it is essential to see how things will change. Central banks will surely take a measured pace. It is almost certain that a change involving cryptocurrency and blockchain is coming for banks.
Putting an end to inflation
It may be difficult to imagine how a national cryptocurrency system will work. The creation of national cryptocurrencies will potentially change how we invest. Hence, there still needs to be research done on the benefits and costs of engaging in this. However; there is a simple reason why the central bank should adopt cryptocurrency. Taking on cryptocurrencies would mean that they can reduce the cost of inflation. With blockchain technology, banks play an essential role as the benefits will be eminent to a large group of users.