How Digital Currency Could be the Key to Future Globalisation

Published Wednesday 19th August 2020

For many years, digital currency has been in the background of economic thought – a fanciful idea for innovators but without any real-world demand of requirement. For many business leaders, it wasn’t until 2019, when Facebook announced plans for a Libra digital currency, that the thought of using these payment methods really surfaced.

Central banks quickly quashed facebook’s idea, and the currency faded into the background. However, the ambition for a global digital currency is far from dead. Growing global trade and technology advancements highlight not just the advantages but potential necessity for a stable, central currency.

The recent coronavirus pandemic has contributed to a trend of de-globalisation across many of the world’s major economies. However, continued research and implementation of digital currencies, both private and state-backed, could contribute to the future growth of world trade.

The Problem with Global Cash Flow

In these times, any barriers to trade should be considered and, ideally, removed, to facilitate a quick recovery for all economies.

One of the most notable issues with global trade is the transfer of money and payments across borders. While accepted as the norm, when compared to regular payments, the disadvantages for business are stark.

A recent report by the Committee on Payments and Market Infrastructures (CPMI) outlined some of the current barriers to cross-border cash flow as part of a framework for developing frictionless payments. Some of the issues mentioned include time zone differences, batch processing, capital controls and the ‘know your customer’ requirements for anti-money laundering checks.

Combined, these differences lead to a process that is both time-consuming and expensive. Growing concerns over currency fluctuations in these uncertain times provide another barrier to much-needed global trade.

In an already challenging economic environment, these factors could put off companies from joining the global economy.

The Digital Currency Solution

For many years, the increased costs and time of cross-border payments were considered a necessary inconvenience. However, the fluidity of digital currency and its newfound practicality shown by Facebook’s Libra has forced central banks to act.

It’s widely agreed that the currency offered by Facebook was flawed; led by a company with a disappointing privacy record, it was destined to be halted. However, it did provide an example to the world as to digital currency’s potential.

If done correctly, digital currencies can offer unparalleled speed for global traders, alongside a much-simplified payment process in general. The term ‘stablecoin’ is often used, referring to a central currency that offers stability that could usurp the US dollar in the world of global trade.

What Will a Global Currency Look Like?

Given the potential power of a central currency, it’s unsurprising that central banks are now scrambling to enter the market. It’s not a space race, but a money marathon with a much more significant prize at the finish.

Earlier in August, China expanded its trial of a digital renminbi to include many of its major business hubs, covering over 400 million potential users. Fuelled by the Libra announcement and growing US tensions threatening access to the dollar, the digital yuan is reported to be seen as a long-term alternative for global trade.

The United States is also stepping up their research into a central digital currency to keep on the coattails of early leaders, while various other bodies are also researching the practical implementations required for a global coin.

Is Digital Currency the Future of Trade?

Unsurprisingly, the most significant barrier to a stablecoin is national interests, namely those of the United States. Arguably, it is the USA which has the most to lose, given its hold over global trade. If the dollar was usurped by a worldwide currency out of its control, the dynamics of the current global economy could dramatically shift.

While there is something to lose, there is also much to gain on both a macro and micro-economic level. A seamless monetary system would go a long way to facilitating global growth and increased connection following recent setbacks for globalisation.

How quickly digital currencies become a practicality is up for discussion, and will likely be swayed by unlikely forces, like the Libra. The technology and research is all there – all that is needed now is the push to force central banks into action.

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