Digital Currencies

The term digital currency refers to any currency that exists exclusively in electronic form and differs from electronic currencies in that it cannot be converted to physical form in any form. Electronic money is fiat currency that is stored electronically

There are three major types of digital currency: central bank digital currencies (CBDC), cryptocurrencies, and stablecoins. Blockchain technology provides the foundation for most digital currencies, as it remains the most popular type of distributed ledger available for running digital currencies

The Central Bank Digital Currency is a form of a digital currency issued and managed by a country’s central bank. To put this in perspective, think of bitcoin being owned and managed by the central bank of a country. According to the IMF, more than a hundred countries across the world are studying the possibility of establishing their digital currencies. While at the present, only a few countries have solid plans to start issuing digital currencies, it is expected that more and more countries will be exploring this option in the future

A major difference that CBDCs will introduce to finance would be instant payment and the irreversibility of transactions that are possible with electronic money. Also, CBDCs will likely be accepted as legal tenders, which implies that economic stakeholders must accept them as a legal form of payment for any purpose. From tax payment and investment to transactional payment, CBDCs will be deployed in the same manner as money

The benefits of digital currencies are extensive. The first benefit is faster payment as compared to conventional electronic payments that take longer time to deliver. Another major advantage is the cost of international transfer. International transfers are expensive, with institutions charging individuals high fees to move funds from country to country, especially in cases with currency conversion

However, digital currency transfer will be less costly to transfer between countries. Existing money transfer means to take time to deliver during the weekends or outside of normal business operating hours due to the temporary closure of financial institutions during these periods. Transaction speed remains the same with digital money at any period. Finally, the development will ensure a more efficient payment system for government agencies

While the current blockchain technologies can support these advantages, there are limitations of the environment. This implies that only digital currencies operating on similar blockchains will be viable for international transactions. However, with the cross-ledger functionality of the AERO, there will be a possibility for the transfer of digital currencies between all possible countries and entities as all blockchains will thus have the characteristic to communicate and transact.