Digital currencies and the reshaping of the global economy

Date: 10 - 01 - 2024


Source: Al-Wafd newspaper

Dr. Ali Mohamed Al-Khouri

In a world that is rapidly moving towards digital transformation, the emergence and development of digital currencies represents a revolutionary shift in the global economic model. This transformation, fueled by rapid technological progress and the digitization of financial systems, is having far-reaching implications for economies, governments and financial institutions around the world.

The emergence of digital currencies has fundamentally changed the landscape of monetary transactions and provided a more efficient, cost-effective and inclusive financial system. As noted by the International Monetary Fund, nearly 130 countries are now exploring or implementing digital currencies, up from 74 countries in 2021. This increase reflects the growing interest of governments in leveraging digital finance to promote financial inclusion, especially for underserved populations. Banking.

Cryptocurrencies, especially central bank digital currencies (CBDCs), are poised to redefine financial transactions by offering secure, fast and transparent payment methods. Unlike traditional cryptocurrencies, which operate in a largely unregulated digital space and pose significant risks due to their volatility and lack of central oversight, CBDCs are issued and regulated by central banks, making them a more stable and secure alternative. This distinction is crucial to understanding the potential of digital currencies in mainstream financial operations.

However, the journey towards a fully digital economy is not without challenges. As central banks embark on this transformational path, they face significant obstacles, including the risk of disintermediation in traditional banking systems and the need for significant investments in digital infrastructure. Moreover, the environmental impact of digital currency operations, especially with regard to energy consumption, requires careful consideration and the adoption of sustainable practices.

The pace of adoption of digital currencies by different countries varies greatly, and is influenced by their unique economic contexts and technological readiness. For example, the cooperative project between the UAE and Saudi Arabia, Aber, aims to provide a unified digital currency for cross-border transactions, setting a precedent for other countries. Likewise, China’s digital yuan (e-CNY), which has been launched in several provinces since 2020, embodies the country’s ambition to position itself as a leading digital currency nation.

The global shift towards digital currencies, although still in its early stages, has the potential to reshape the international financial system. It promises to enhance the efficiency of cross-border payments, promote financial inclusion, and perhaps challenge the dominance of traditional fiat currencies. However, achieving these goals requires a collaborative international approach, ensuring regulatory coherence, interoperability, and harmonization of anti-money laundering and countering the financing of terrorism frameworks.

In conclusion, the rise of digital currencies represents a milestone in the development of the global financial system. While the opportunities are enormous, realizing the full potential of these digital assets will require concerted efforts from governments, central banks and financial institutions around the world to overcome the complexities and harness the benefits for a more inclusive and efficient global economy.