Last year, Facebook revealed their plans to release a digital currency called Libra. Now that it’s 2021, that currency is set be released at some point this year.
That announcement had some ramifications, unfortunately. Other countries such as China have accelerated their work on their own digital currencies, a race to be the first to release what many expect to be a revolutionary technology.
When a digital currency is released here in North America, physical currencies – bills and change – will slowly be phased out like the penny was many years ago. The U.S. already has a disproportionate amount of power over the global economy. With the removal of physical currency, several issues will inevitably arise.
What About Cryptocurrency?
An argument might be made that digital currencies already exist, so this might not seem like a big deal at all. That’s not exactly true. A digital currency is not the same thing as virtual currency or cryptocurrency. Virtual currency “is a digital representation of value, not issued by a central bank, credit institution or e-money institution, which, in some circumstances, can be used as an alternative to money”. Virtual currencies have no physical means, making them difficult to quantify.
This differs from banks, debit, or credit in that the money you spend has something represent it in the real world. When you spend money on your credit card, for instance, you have to pay that back (with interest). A dollar in your bank account shares the exact same value as a physical dollar.
This is not true for cryptocurrencies. Cryptocurrencies like Bitcoin fluctuate dramatically in terms of value, meaning the value they hold isn’t based on the value of a physical dollar. A Bitcoin can be worth thousands of dollars one day… and then next to nothing the next.
On top of this, digital currency “is regulated in a centralized location, like a bank. Cryptocurrencies … are governed by the majority of the community”.
The information behind transactions are kept private with digital currencies or cash. Think about it – no one knows where the cash in your hand has been spent in the past. With cryptocurrencies, none of this information is hidden. Anyone can see every transaction made or received.
There’s also less safety involved with these forms of currency. If you have problems with a seller, who are you going to contact to deal with the issue? There’s little chance of getting your money back.
As long as cryptocurrencies are managed by everyone, there will never be a set value and your money will never truly be secure.
Issues with Digital Currencies
Okay, so what’s the big deal with digital currencies, then?, you might be thinking. If they’re regulated and private, doesn’t that mean they’re still safe to use to exchange goods and services? Not quite.
One of the main concerns with digital currencies is that they require an intermediary to perform transactions. This means that your transactions will be even less private than they are through debit or credit. Every transaction you make will be traceable, meaning economic privacy will be next to impossible.
Another issue is in control and the issue of business over government. If a digital currency is launched by Facebook or a similar tech company, a company entirely focused on commercial interests (earning money), elected governments could face instability and drastic changes in policy.
If a currency is controlled by a company instead of the government, how do we know that the various programs created will be in the interests of the people, and not in the interests of shareholders? Free education and hospital visits are things we take for granted.
Without government control over the currency, we could start seeing basic human rights becoming monopolized into expensive services. We’ve already experienced this in university and prescription costs. Privatized control of these industries could potentially lead to increased social inequalities.
Of course, it could be many years before we see physical currencies phased out of existence. For now, we can only speculate on the future of the economy.
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