Clarification from the Cryptocurrency Strategies Forum – BestForexEasy

Clarification from the Cryptocurrency Strategies Forum

The Jordan Strategy Forum issued a report within the Knowledge is Power series of reports, entitled “Money in the Age of Digital Transformation”; With the aim of shedding light on central bank digital currencies and how they differ from cryptocurrencies.

In the introduction to the paper, the forum reviewed the three main functions of money, where money acts as a medium of exchange, a unit of value, and a store of value. Within the framework of its function as a medium of exchange, it works through this function to facilitate the exchange of goods and services.

The report stated that in cases of lack of money, individuals agree on a method that acts as money for the purpose of barter and conducting transactions, as individuals have no options but to rely on barter, although it is an impractical method.

As for the scope of money as a unit for measuring value, it is used as a measure of the value of transactions. If a person buys a commodity, the price will be determined in dinars (and not in any other commodity corresponding to the value of the purchased commodity). As for making money as a means of preserving value, if someone “X” earns a dinar, he can keep it and spend it in the future, as the dinar is preserved because it preserves the value.

In this context, the forum explained that the nature of money has changed over time, as the oldest forms of money were coins made of valuable metallic material (such as gold and silver). These coins were gradually replaced by representative paper money with metallic reserves, as governments keep these reserves for money holders when they are requested to redeem them. Today, governments use cash, non-transferrable securities called (Fiat Money).

According to the forum, the concept of cash securities refers to the money approved by governments to deal with them legally. It is considered to have a nominal value greater than its real value, and it is not backed by mineral reserves. Rather, its real value stems from the confidence of dealers in it.

In the same context, the forum pointed to the increasing level of public interest by governments, central banks, the private sector, and citizens around the world in the so-called “cryptocurrencies” and “digital currencies.”

With regard to cryptocurrencies, the forum defined it as a decentralized digital currency (there is no central party controlling it), as transactions are processed and recorded through the so-called “blockchain”, which in turn keeps all transaction records and tracks the owners of the currency. . As for digital currencies, the forum defined them as a digital version of fiat money approved by the government and issued by the central bank.

In a related context, the forum reviewed some necessary observations in response to the opinions circulated by cryptocurrency advocates, which revolve around the inevitability of their use, as they represent the future of money.

Accordingly, the forum stated that cryptocurrencies should have a stable price for the purposes of using them as money, as this stability ensures that they can be exchanged with goods and services.

In this regard, the Forum has indicated that all evidence indicates that the reality is otherwise. In addition, cryptocurrencies are usually treated as a speculative asset, when individuals expect any increase in the price of cryptocurrency, they will buy it only for the purpose of selling it on a later day, i.e. the purpose of using this currency is not to buy goods and services. Accordingly, skepticism lies in the method of using cryptocurrencies as a medium for exchange, as it does not achieve this function necessary for its approval as cash to be traded.

With regard to some details about the digital currencies of central banks, the forum stated that the digital currency is a currency that is widely available to the general public, and that it is considered a digital obligation on the issuing central bank and takes the digital form of paper money approved in the country.

From here, the forum emphasized that the Central Bank is the only entity that retains the authority to supply the currency and the ability to control its value directly through its monetary policy.

The forum also indicated that the use of the central bank digital currency comes as it is a legal currency that is approved for transactions, that is, it acts as a medium of exchange.

In this context, the forum clarified that the introduction of digital currencies issued by central banks has several implications for the traditional banking model. Pointing out that the digital currencies of central banks are considered obligations, which makes the digital currencies of central banks safer than the digital money of commercial banks (which is the money that is digitally traded through smart applications and electronic platforms of banks). In contrast to the traditional banking model, the deposit of digital currencies issued by central banks spares depositors any risks, thus eliminating the need to insure their deposits.

The forum also made it clear that dealing with CBDCs may not require a bank account, if the central bank so deems it. In this case, the percentage of financial inclusion increases for individuals who do not have a bank account through their dealings in digital currencies with the Central Bank through the smartphone application. However, the policy of central banks may impose the presence of bank accounts, even if the digital currency is used, because it deals directly with financial institutions only.

The report indicated that if individuals and companies are allowed to withdraw their deposits from commercial banks for the purpose of depositing them as digital currencies in central banks, then the ability of commercial banks to lend becomes restricted. Accordingly, banks may have to borrow from the Central Bank to finance their financing activities. In other words, central banks become the “lender of first resort”.

In this context, the forum defined monetary policy as a set of monetary measures implemented by central banks to influence money supply and interest rates, with the aim of maintaining price stability and the local currency exchange rate.

And in the event that the central bank pays interest on the deposits of individuals and institutions of digital currencies, then it can transfer the impact of its monetary policy (Monetary Policy Transmission) directly to individuals and companies instead of relying on commercial banks as a tool for transferring monetary policy.

According to the report, all transactions made through CBDCs can be monitored with the aim of quickly identifying banks facing liquidity shortage problems. Thus, it will not depend on the reports you provide to it. Accordingly, central banks’ remedial measures become more effective.

On the importance of digital currencies for central banks, the forum indicated that approximately 114 countries (representing more than 95% of global GDP) are considering offering their digital currencies through their central banks.

The forum also indicated that about 11 countries have announced the launch of their digital currencies in full, with China preparing to expand the beta version to include the entire country by 2023.

The forum also noted that more than 20 countries have taken significant experimental steps toward launching their own digital currencies. Australia, Thailand, Brazil, India, South Korea and Russia plan to continue or start pilot testing in 2023. The European Central Bank is also likely to start its experiment next year.

In a related context, the forum indicated that there are 18 G20 countries that have reached advanced stages of developing their digital currencies, while there are 7 G20 countries in their experimental stages.

In this context, the Forum indicated that in February 2022, the Governor of the Central Bank of Jordan, Dr. Adel Sharkas, stated that the Central Bank of Jordan is currently studying the possibility of issuing an official digital currency linked to the Jordanian dinar.

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