The Economist’s new cover theme: Govcoins, the digital currency that’s changing finance

The authoritative journal The Economist has announced the cover of the new issue of Govcoins, the digital currency that’s changing finance, for May 8-May 14.

The Economist's new cover theme: Govcoins, the digital currency that's changing finance

The subject article writes that technological change is disrupting finance. Bitcoin has transformed into a $1 trillion asset class, and a large number of digital traders have become a force on Wall Street. PayPal has 392 million users, signaling that the U.S. is catching up to China’s digital payments giant. Government digital currencies were created to allow people to bypass traditional lenders and deposit funds directly into central banks.

These ‘Govcoins’ are the new incarnation of money that promises to improve financial operations but also shifts power from the individual to the state, changing geopolitics as well as the way capital is distributed.

About a decade ago, former Federal Reserve Chairman Paul Volcker complained that the last useful innovation in banking was the automated teller machine (ATM). Banks have modernized their dilapidated systems. Entrepreneurs have built an experimental world of “decentralized finance,” the best known of which is Bitcoin, which contains a large number of tokens, databases and channels that interact to varying degrees with traditional finance. Meanwhile, financial “platform” companies now have over 3 billion customers who use e-wallets and payment applications. In addition to PayPal, there are established companies such as Ant Group, Grab, Mercado Pago, Visa, and Facebook.

The Economist's new cover theme: Govcoins, the digital currency that's changing finance

The article points out that government or central bank digital currencies are the next step. The idea behind it is simple: you can open an account directly with a central bank through an app like Alipay or Venmo, without having to use a check or swipe your card online. Your money will be secured by the state, rather than through a bank.

The Bahamas has already issued a digital currency. China has rolled out an e-renminbi pilot to more than 500,000 people. The EU wants a virtual euro by 2025, the UK has set up a task force, and the world’s financial juggernaut, the US, is building a virtual dollar.

One of the motivations for governments and central banks is the fear of losing control. Today, central banks use the banking system to expand monetary policy. If payments, deposits and loans move from banks to the privately run digital sphere, central banks will have difficulty managing economic cycles and injecting money into the system during crises. Unsupervised private networks could become a place for fraud and privacy violations.

Another motivation is the desire for a better financial system. Ideally, a currency would provide a reliable store of value, a stable unit of account, and an efficient way to make payments. If banks fail, bitcoin is not widely accepted, and credit cards are expensive, then uninsured depositors may suffer losses. Government e-moneys would be highly rated because they are state-guaranteed and use inexpensive central payment centers.

The Economist's new cover theme: Govcoins, the digital currency that's changing finance

As a result, Govcoins could reduce the operating costs of the global financial industry, which could give 1.7 billion unbanked people access to financial services. Government digital currencies could also expand the government’s toolkit by allowing it to make instant payments to citizens and reduce interest rates to below zero. The appeal of a free, secure, instant and universal payment method is obvious to the average user.

Governments and financial companies need to prepare for a long-term shift in the way money works. This means strengthening privacy laws, reforming the way central banks operate, and preparing retail banks to play a greater peripheral role. National digital currencies are the next big experiment in finance, and they promise to have a bigger impact than ATMs.

Posted by:CoinYuppie,Reprinted with attribution to:
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