Digital Currencies Could Influence Global Trade

Digital currencies are growing at a rapid pace. Digital money has the capacity to truly transform the financial sector. Lower income nations and emerging markets especially stand to gain the most from digital currencies, as they can open the door to financial services for several people without traditional bank accounts. A top finance expert, Kavan Choksi points out that digital currencies market is valued at more than $2 trillion and involves more than 15,000 varieties. Many nations have launched launch central bank digital currencies (CBDCs) pilots, while several others are developing CBDCs or conducting research on it.

Kavan Choksiunderlines the ways digital currencies may impact global trade

From previous metals to paper money, currencies are extremely important for international trade and commerce. As society enters the digital age, several forms of digital currencies have managed to crop up. There are many ways digital currencies might influence international trade, such as:

  • Digital currencies can improve the efficiency of cross-border payments: The speed of settling cross border payments varies from the same day to five business days. In certain cases, human interaction is required in the process of verifying the information of the recipient and sender, including for the purpose of anti-money laundering and combatting terrorism financing. Therefore, the speed of payment is commonly determined by how much business hours of the receiving institution and sending institution overlaps. Whether or not the sending and receiving institutions depend on the same messaging standards also impacts the payment speed. Money could, however, be sent and received within seconds and around the clock when it comes to digital currencies that depend on decentralized ledgers. Future regulatory compliance requirements on digital currency service providers and foreign exchange control might have an impact on this speed.
  • Digital currencies may provide alternative credit information for trade finance: Kavan Choksi mentions that there is a $1.7 trillion global trade financing gap that majorly impacts SMEs who generally do not have established financial records with banks. Public ledgers of digital currencies might be used for sharing financial and payment history in order to underwrite loans for export and important. Robust privacy protocols must also be enforced to achieve this goal.
  • Digital currencies might alleviate the issues of de-risking:  De-risking is known to create obstacles for nations with high anti-money laundering and combatting terrorism financing (AML and CTF) risks, who want to take part in global trade. It may increase transaction expenses for sellers and buyers in these nations. Even though digital currencies do not reduce AML and CTF risks, they may provide alternative payment options to enable merchants and consumers from these nations to be reconnected with international buyers and sellers.

A United States central bank digital currency (CBDC) shall be the digital form of the U.S. dollar. While the country has not yet decided whether or not it shall pursue a CBDC, the United States is closely examining its options and implications. If the country did pursue a CBDC, it could help foster greater access to the financial system and support the continued centrality of the U.S. within the international financial s

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *