A New Movement in Global Finance: Cryptocurrencies and National CBDCs Disrupting the Old Monetary system
For decades, countries around the world have used the same system for transferring money: SWIFT (Society for Worldwide Interbank Financial Telecommunication). Even though it was revolutionary at the time of its introduction back in 1973, technical advancements since then have made it obsolete.
At a time when economies across the globe are facing mounting debt crises and financial instability, modern solutions are needed to promote global economic stability and equitable development. To this end, cryptocurrencies and central bank digital currencies (CBDC) could potentially offer viable alternatives to traditional fiat currency-based international payment systems such as SWIFT.
The current state of the global economy is concerning; debt accumulations in many developed countries are reaching unprecedented levels while developing countries are struggling with increasing poverty despite poor governance and resources. Although policymakers have implemented various policies aimed at improving economic growth and tackling rising debt, they’ve been largely unsuccessful.
With these policies unable to effectively address the growing economic inequalities between richer and poorer nations, people have begun seeking other solutions. One way to possibly alleviate some of these issues is through transitioning to alternative forms of international payments that don’t rely on basic fiat currency exchange rates.
Thanks to decentralization technology, cryptocurrencies seem like an ideal contender to replace existing payment systems such as SWIFT. Cryptocurrencies can operate without being limited by the rigid borders of both fiat currency and government regulations. For example, XRP has become one of the world’s more popular cryptocurrencies due to its ability to be transacted within seconds by stable transfer fees close to zero , which makes it perfect for fast and simple global transfers.
Additionally, cryptocurrencies provide an avenue for private citizens to deal with governments as well as businesses in their own country making them less reliant on external sources of finance. Furthermore, because all transactions take place on a distributed ledger – shared publicly yet kept anonymous – fraud is virtually eliminated due to its incorruptible nature. However, while cryptocurrencies may serve as an effective tool against debt crisis and financial instability caused by fiat currencies, they do pose certain risks as well.
While cryptocurrencies are not backed by any central banking system nor have any inherent value outside what users establish, depending solely on them also means having no related governmental oversight or common law surrounding their use. This brings to the idea of using national CBDCs to help tackle public debt woes.
Central Bank Digital Currencies are digital versions of a nation’s traditional currency but powered by blockchain technology instead of traditional banks. By enabling seamless transactions without involving a third-party intermediary or requiring conversion into another currency beforehand (as with SWIFT), using a national-level CBDC could efficiently facilitate international payments and reduce transaction costs significantly by replacing middleman services with distributed ledger networks governed by consensus protocols.
From a risk-reduction perspective too, leveraging CBDCs would help improve transparency in the final settlement process thereby reducing counterparty risk associated with current payment systems like SWIFT when sending money internationally. Ultimately, transitioning away from SWIFT remains essential if we want to protect global economic health moving forward by preventing or limiting future debt crisis. The ability to cut out inefficient intermediaries like banks and costly conversions provides valuable benefits across various industries, especially those involved in cross-border payments as well as international trade & investment activities related to capital markets & stock exchanges. Therefore, embracing new technologies such as cryptocurrencies alongside national CBDCs may very well offer much needed solutions when combating rising levels of fiscal instability & malign debts globally.