Amanda KristolAs more and more payments are made electronically. New technologies, such as blockchain and central bank digital currency have gained traction, and digitalization has long been a buzzword in the banking industry.
Due to its size, complexity, and strict rules, the financial services industry has been hesitant to adopt new ideas. However, the pandemic has driven digitization to a new frantic pace. News stories about virtual worlds like the metaverse and digital currencies like bitcoin are now commonplace.
The rise of digital currencies
Digital currencies, sometimes known as cryptocurrencies, are a source of worry for some, a niche product for others, and the future of central banks for others.
Nine nations, including Nigeria and the Bahamas, had already started CBDCs at the end of 2021. The e-CNY is now being tested in China and will begin in February 2022. Brazil plans to pilot a digital actual this year, and India has stated that it will introduce a digital rupee by April 2023. Stablecoins are cryptocurrencies whose value is linked to tangible things like the US dollar in the real world. Bitcoin is one of the cryptocurrencies that may be traded and used to make purchases.
Do companies need to accept Digital Currency?
Digital currencies provide significant difficulties for the Treasury. Whether a multinational working in CBDC-affected areas or an internet business, they must decide whether to accept various cryptocurrencies and assets and, if so, how to assess and manage the risks involved. Customers are starting to want a more extensive range of options for making payments, whether with cash or contactless, online or via their smartphone, and digital currencies may increasingly become one of those options.
Their stability is still up for debate at the moment. Because of this, Bitcoin’s acceptance as a form of payment is comparatively low. We search for several characteristics in payments. Additionally, it must be fungible, resilient, stable, and not volatile.
However, the quick ascent of concepts like stablecoins and CBDCs, as well as initiatives to regulate this market, demonstrates that the idea of cryptocurrencies as digital currency is considered worthwhile. To fully utilise digital currencies’ fundamental advantage of quick, efficient payments while reducing risk and volatility, banks, companies, and regulators want to stabilize them.
Critical issues for systemic change
The problem of stabilization is one thing. The depth and scope of potential change brought about by new currencies are another. Consider the last time a new currency was introduced—the Euro—and the extensive work required to adapt hundreds of systems throughout the sector to the new currency code. Imagine how much change will be required due to using several digital currencies.
CBDCs will be employed, at least initially. It enhances the experience of wholesale payments between commercial banks and central banks. There are also apparent applications for cryptocurrencies in foreign exchange. A universally recognized digital currency might effectively have no borders. There is now a broad spectrum of experimenting, as with any new technology, and not all ideas will be adopted.
Asset tokenization and digitization are developing trends that will eventually give rise to the metaverse concept. The metaverse has already started. Whether it be through a work of digital art or the fact that we each have a story to tell in the Sandbox. Some people believe it to be the natural next step in the development of the internet. But much as with digital currencies, the use cases that matter in this situation.
Even while organizations undergo transformation due to digitization, they may discover that technology has already altered. Treasury operations face a particular challenge since they must be adaptable and agile to satisfy business objectives and remain on top of emerging trends. Tokenization, the metaverse, and digital currencies are ongoing discussion topics.