Category: Currency

The EUR-AUD Exchange Rate

Foreign exchange rate is a primary determinant in business operations for multinational corporations. It affects cash flows for import and export transactions, and foreign investment decisions. The continuous change in values on international currencies indicates that a Chief Financial Officer has a daunting task in monitoring exchange rates movement. The concept of foreign exchange rate posits that different currencies have varying prices for various goods and services. Hence, this variation makes it possible to price one currency in terms of another. Demand and supply forces affect the commodities market, which then ultimately determine whether currency value goes increases or declines. Numerous economic factors influence foreign exchange rates including inflation, interest rates, trading volumes, and money speculation.

Inflation is a crucial factor in evaluating the strength of local and foreign currencies. It implies that there is excess money supply vis-à-vis the available goods and services, which cannot increase in time to regulate the prices or reduce inflation. Hence, exports lose their competitiveness and the prices of imported goods decreases. This scenario leads to an upsurge in imports consequently increasing the demand for foreign currency and weakening the subject nation’s currency.

Financial institutions lend money to borrowers and expect an interest amount for the total term of the loan. The basis of interest rates can be days, weeks, months, or years. High interest rates attract investors to buy a currency and increase its demand in the process. Changes in interest rates are also affect the borrowing power of consumers and companies. Therefore, this affects the cash flow in the country and eventually the foreign exchange market. Interest rates have a negative correlation with exchange rates. For instance, if a nation wants more US treasury bonds, the demand for USD increases and makes it more expensive thus weakening the local currency.

Other factors such as money speculation and trade volatility are also decisive in evaluating foreign exchange rates. Major equity and bond markets have high levels of exchange rate volatility compared to countries that have lesser market participation. High trading volume indicates high levels of speculation in the market, which leads to high price volatility of currencies.

The Australian Dollar (AUD) and the Euro (EUR) present a great comparison tool for exchange rates especially in view of events such as Brexit. According to Bloomberg (26.04.2019), the current exchange rates for the two price commodities is 0.6307 for AUD-EUR and 1.5855 for EUR-AUD. These rates indicate that the Euro is stronger than the AUD – one Euro is about one and a half times the value of the AUD. The Euro has been resilient against the AUD since the start of the year averaging an exchange rate of 1.59. On the other hand, the AUD has an average of 0.62, hitting a high of about 0.65 for the past year.

The EUR-AUD exchange rate will increase in the next three to six months while the AUD-EUR will witness a downward trend albeit with minimal figures. The Euro is sustaining gains despite Eurozone’s economic and political apprehensions. Events such as the civil unrest in France, Spanish general election, unexpected dip in German industrial output, and Brexit are the source of the Euro fluctuations. These apprehensions make the Euro unappealing, but the decision of the Reserve Bank of Australia (RBA) to reduce interest rates leaves the AUD less attractive in comparison. Considering the negative relationship of interest rates and exchange rates, this decision will reduce the demand for the AUD and thus strengthen the Euro. In addition, decisions by central banks take time to process and investors know that the interest rates will remain in effect for the near future. Therefore, a drastic reversal of the decision has low probability making the EUR-AUD grow stronger in most trading days.

The European Union (EU) and United Kingdom (UK) leaders agreed to push back Brexit to end of October. Hence, the Eurozone trading volume remains in force until then, and currency speculation continues with all factors intact. The highly volatile nature of the Eurozone due to its diverse economies renders the Euro unpredictable. However, the EU has managed to create an economic zone that uses similar currency making it less difficult for investors to speculate. The UK is the fifth largest economy in the world and until a big event such as Brexit culminates, the ramifications may then be dire. Thus, the EUR-AUD exchange rate will increase in the next few months albeit with muted periods.

Forecasted favorable business conditions and investor confidence fail to meet expectations as the year progresses. A 2019 February survey by the National Australia Bank (NAB) confirms the decline in business confidence, which has implications for future investment decisions. The EUR-AUD exchange rate remained muted in March despite a slump by Australian home loans. Such events reaffirm that the EUR-AUD exchange rate will increase while the AUD-EUR will go down. However, both exchange rates will witness fluctuations with relatively low variations.

Reflections on Whether Investing in Cryptocurrencies Could Be the Future

Cryptocurrencies are digital currencies that work under blockchain which secures and controls the transaction that occurs through the network. This was created to send online payment directly without the interface of the banks. This decentralized network was created by Satoshi Nakamoto so that anyone could use it but no one can own it. The first most popular type of cryptocurrency is bitcoin. Other examples of cryptocurrencies are Namecoin, Ethereum, Litecoin, Ripple, Dogecoin or Zcash. The total number of cryptocurrencies sums up to 900 currencies in the market. The use was not known for a long time. Apart from just buying and selling of cryptocurrency, it can also be used to gift, dine, purchase, use for charity and travel. It seemed very confusing for many, but blockchains are just like another database system that records a transaction that happens within. Data are stored in blocks. All information like the transaction, the address of the parties involved, the amount and time the block was created are stored. Cryptocurrencies are created by mining and the once who created them are called miners. This involves a lot of costs. Learning to create mines is complicated as it requires the miners to create protocol (rule) that governs the network, computer which runs software that supports the protocols also required. Mining also involves the process of verifying the data, collecting transaction fees and creating currency supply. Miners also ensure that double spending is not done. The network is designed in such a way that any one miner can edit the transactions. Blockchains are decentralized. So, it has less operating cost than the centralized system but others fixed and variable cost remain high. Bitcoin being one of the most known currencies is listed in the top 30 currencies list.

Now in 2019 many companies like TDS Capital Group have started trading strategies, daily videos on the current market situations and e-books on cryptocurrency that has made it easy for normal customers who don’t know about the trading to come and do trading. Educating was their aim so that more people know how the importance of cryptocurrency. They have made sure that the trust issues with money are being seen. The regulations like KYC (Know Your Customers) and AML (Anti Money Laundering) are seen these regulations are what a normal financial institute would go through. They have implemented security measures like SSL (Secure Sockets Layer) encryption. If we see in future printing money can cost for the banks, so banks can prefer to do the transaction over the network. But this cost can be covered by customer deposits. Many customers prefer using more digital cash. The value of these currencies cannot be predicted as the value increase with an increase in price and decreases with a decrease in price. The transaction processed with this network is limited as to only three to four per second. Visa processes 30,000 credit cards in the meantime. The cryptocurrency market can be seen as scary, mysterious and exciting all at once to the people. There was a huge scope when cryptocurrency was introduced as there was a financial crisis all around the world as people lost trust in banks during the crisis.

Advantages and Disadvantages

Cryptocurrencies can be used as a cost-effective and efficient instrument to minimize the risk involved for people who invest in foreign exchange. It is for the people who want to get money fast and is ready to take a lot of risks. It is good for the transfer of money internationally. It doesn’t involve is printing, securing and transportation cost. If cryptocurrencies replace fiat currencies, then there is no need to exchange money when you travel to different countries. No need to carry cash you can access. The digital currencies will have same value everywhere. Their benefits have a different opinion in different countries. Some countries find it as a means of illegal transactions of money. One of the main disadvantages is the way the network is being designed. Even though the transaction is said to be anonymous. The block is shared with all the users which make is vulnerable to attacks as access is easily available. Hackers can skim bitcoins during the trade. There are stories of assets being stolen from the network. For cryptocurrencies used in commodities also has a downfall. The values of many commodities vary. This brings fear in the investor as they are not sure of whether to invest or not. The volatility of the currency creates risk which in turn creates trust issues. This is due to the lack of a central body to control them. Frauds have increased due to the faulty system setup by exchange companies. As it doesn’t have any Government intervenes acceptance by users is limited. There was an increase in crimes and avoidance of tax payment due to this type of system. Many companies dint understand how this system work and were slow in learning and to react to this system. Many competitors like apple pay and PayPal came up with better and more secure plans. One of its major competitors like dash provide secure, faster and easy mode of payment services. Also, customers found it easier to use mobile to do payments. This reduced the use of bitcoins which was more complicated. Storage of digital currencies is a huge challenge. There need to be assurity that the driver is secure and has space. There is a lot of confusion of which is the best from a variety of digital currencies are available. Cryptocurrency cannot be an ideal form of money in the current market.

Crypto Crisis

Cryptocurrencies had seen drastic ups and downs in the 10 years since its existence. When there was a boom the sources for cryptocurrency transactions were available for cheap. This includes the computer, electricity and the miner who do the transaction. Since miners were earning easy money. They started competing with each other and started creating more rigs that are powerful and can mine more bitcoins. So, the energy required was enormous. When the value of the cryptocurrency fell, it became difficult to cope up with the expense and cost of the computer’s hardware and electricity. Also, the miners were being paid less so many were not ready to work. When the value for cryptocurrencies was high then many miners took huge loans from banks to purchase the computers and technologies for the transaction. They faced a lot of trouble. They wanted to get easy profits but ended up with big losses. This had a ripple effect on many companies and industries who worked around these electronic currencies. A lot of startups launched Initial Coin Offerings (ICOs), a way to start up to raise money, but many governments found it illegal as they were not registered with authorities. Also, the structure of the blockchain that governs Cryptocurrency is less complex which makes the network prone to attacks from hackers. With its downfall also some saw the future in it. Here we can see that although there was a 90% fall in some of the types of cryptocurrencies. And it became more expensive. There were still hopes. Some of the cryptocurrencies like dogecoin were still doing well. The founder of blockchains is working with many authorities to increase the usage of cryptocurrency as a means for their transactions. New York and Chicago money centers have opened regulated trading platforms for cryptocurrencies

What Were Their High Expectations for the Future?

The experts expected that in 2019 many of the financial institutes especially banks would go with this blockchain-based technology for cross border transactions. They are expecting a 25% rise in the use of cryptocurrency by the end of 2030 by Thomas Frey one of the futurists. Many more cryptocurrencies to be introduced. Future people might use cryptocurrencies for remittances rather than fiat money. Many smartphone transactions can be done using cryptocurrencies. They have predicted that fiat currencies life span will be no more than five years. Government agencies will adopt blockchain technology. Government currently maintains a ledger of all accounts manually which making it hectic to handle, with the introduction of blockchain technology data will be managed effectively and will be less time consuming. Government agencies will use cryptocurrencies to manage the cash flow. Government of Estonia has already opted for blockchain for storing all important information about the citizens. Trade exchange house will start using cryptocurrencies for the exchanges. It’s also estimated that not just bitcoin but other cryptocurrencies will be in use and their prices also will increase giving more benefits to the cryptocurrencies market. It’s also said that cryptocurrency will have a major effect on banks. It told that people will start opening cryptocurrency bank account, loans will be provided in the form of cryptocurrencies and also people can buy cryptocurrencies from ATMs. Cryptocurrency debit card also will be in use. It is also predicted that blockchain will help in transfer of money back home faster. It will also help in faster download and transfer of file. The downloaded file will be accessible in the cryptocurrencies’ wallet. These are the few predications for the future of cryptocurrencies by experts.

Is There a Future for Cryptocurrency?

Owning cryptocurrencies can be like cheating. Only those people will buy and sell those who have an appetite for risk. It’s too risky for normal and ordinary investors. It enables the parties involved to be anonymous. This currency exists with values set by supply and demand. There are limits to the number of transactions that can be done in each update of the blockchain. What if the transaction goes more than the limit? Each day has millions and millions of transactions that need to be done. This is one of the main limitations. Some money is lost in the market while the transactions. All online transactions are done electrically are based on a factor of trust. Yes, trust is very important when it comes to dealing with transaction especially related to money. No one is ready to take up a big risk. If there is any organization or brand that is ready to legitimize the transaction then there might be an increase in the usage. The verification and the confirmation time over this network are more when compared to the digital payment system like PayPal or any other credit card payment systems. There should be a verified system through which transaction takes place. This would create a trust factor in people and they would be ready to invest more. Many brands like Amazon, Starbucks and have tried investing but dint find much to their support. For the acceptance of such electronic currencies, we need a centralized body just like a central bank. This creates no room for monetary policies. Efficiency is reduced. Another issue is that it has still not found its role as a rival to any payment systems like PayPal, Apple pay or Samsung Pay. Microsoft, Subway and Expedia accepts cryptocurrencies as a mode of payment for their services. It would make a huge difference for financial institutes. There is a possibility that if fiat money and digital money go hand in hand in hand then the operating cost would reduce for financial institutes’ and it would be more continent for customers. But in that case, traditional currencies should be superior to digital currencies. Since there is no flexibility for cryptocurrencies it cannot withstand financial crisis. There is a huge risk of opportunities. They are working hard on stabilizing the model for better use. Many companies are coming with new ideas. If they were backed up by sovereignty then there might be a lot of scopes. Cryptocurrencies should increase their value. They can do so by introducing it to cooperate with a lot of security and protection. This protection should not only be for vendors but also for the users. They should increase their creditability for the wider financial market. It puts a lot of pressure on communities of stakeholders and developers of the networks. Developers work on codes for a business that in turn needs to work to clear statements to the user.

Conclusion

The cryptocurrency market is striving to get a push by innovation and by fixing all their flaws. Owning cryptocurrency can feel like cheating. The flow of fund might look easy as the track is through Internet technology. Yes, it has a lot of advantages, but disadvantages outrage them. Fiat money is considered as a legal tender but electronic currencies cannot be considered legal. It is a disruptor to banks and financial institutions. This would help in reducing the operating cost of banks. But there is a need for a bank to compete for the developments of the country. It affects the inflation and functioning of the monetary systems. The banking system always helps in financial flow. The technology used in cryptocurrency is designed to avoid the involvement of trusted third parties. If cryptocurrencies come into being as the only payment system, then there might be the elimination of banks. This might be bad for a nation. Regulation should be firm which will help in certainty and credibility; this will increase the investor’s rate exponentially. Another issue is the need for miners who should have good knowledge. This involves cost as money is needed to pay them. So, if there are no miners then there is no future for cryptocurrency as a future. Cryptocurrency won’t be cash we would require the Internet all the time to stay in the network. Cryptocurrency is not something that you would use to buy regular groceries. Frauds and hacking will increase as everything happens in a technical network. Many retailers have started giving an option of payments as cryptocurrencies. But not many are ready to take the risk. Good currency is the one that has stable purchasing power, but cryptocurrencies demand depends on its price. This attracts countries which are economically unstable. Yes, if there is a regulatory body to govern the transaction of all the cryptocurrencies then yes, it could be the future. As of now, there is no such body or any improvement in their security system. Since its fall is predicted that in 2020 the demand will be reduced to half. It involves a lot of risks. To eliminate traditional cash, then the whole infrastructure needs to be changed. So, it needs to go a long way to be popular and become the future.

References

1. https://money.com/the-future-of-cryptocurrency/
2. https://cryptonews.com/exclusives/crypto-2020-how-adoption-will-look-next-year-and-beyond-5037.htm

Should Cash Currency Be Eliminated? Essay

A cashless society is a society in which purchases of goods or services are made by credit card or electronic funds transferal rather than with cash or checks. The economic concept of a cashless society appeared as early as the 17th century, but it was presented as a check at that time. Then it slowly evolved to credit card and debit card, and then into today’s e-wallet (LightNet, 2018). Today, a cashless society has become a controversial hot topic when China is rapidly promoting a cashless society. Some people agree that cash currency be eliminated and a cashless society should be promoted, while others think that it is not safe and reliable. Although many people believe a cashless society not safe and reliable, there are some arguments to show that a cashless society should be promoted due to its security and convenience.

Firstly, a cashless society should be promoted because it is safety. Recently figures have shown that a cashless society effectively decrease the rate of crime, example, burglary, robbery. People don’t have to pay cash currency when they go out, and there will no robbery. With e-wallet or card payment, all payment will be recorded, expenses will become transparent, and also the tax evasion rate will be greatly reduced. According to an electronic benefit transfer (EBT) program, 9.2% of crime (burglary, robbery) dropped and also decrease the case of financial transaction which involving cash currency (Wright et al., 2014). Furthermore, it also helps to reduce disease transmission. There are a few studies to show that many bacteria and germs and small amount of drugs are stick on our money and coins, those bacteria may be not having big impact to our body but still has a risk of being infected by unknown bacteria. According to a study, it shows “influenza, norovirus, rhinovirus – are all can be transmitted through hand-to-hand or surface-to-hand contact” (Scientific American, 2017). Therefore, those bacteria may harm to our health.

Next, a cashless society is bringing convenience to us, so cash currency should be eliminated and a cashless society should be promoted. Today, online shopping has become a new consumer market, and many people shop online frequently. Therefore, many merchants have opened online purchase services and delivery services. This provides convenience to buyers. Buyers can buy their favorite things without go to the store. This helps stimulate the frequency of consumption and makes the economy grow. Moreover, digital payment method make payment become easier, they promote economic activity and generate the benefits of financial and non-financial (Massi.et.al., 2019). Furthermore, a cashless society can help to save time. For instance, we no need waste time to queuing up for pay bills or to ATM for withdrawal. All the bills can be paid online with e-wallet and all the things you want to buy can be scanned by QR code of e-wallet. Based on a report, “Further increasing usage of digital payments could save nearly 3 hours per year” (Visa, n.d.). It really brings advantage to us.

However, there are still group of people who believe that a cashless society not safe and reliable and has security issues. But this is not completely true. For the Industry 4.0, it will turn cash transaction into cashless transaction and everything will become mechanization. Banks will cooperation with the companies to establish a secure network information platform for protecting the stability and reliability of e-payment. Government will carry out high-pressure strikes to network financial crimes to maintain the financial order and security of a cashless society. Relevant departments will carry out supervision work according to various payment development situations, improve and pay relevant laws and industry standards. It encourages people to be more trusted on the stability of digital payment.

In a nutshell, it can be said that a cashless society provides a lot of benefits to us, such as safety and convenient. Furthermore, maybe it’s difficult to completely get rid of cash, there are still people rely on it. Actually, digital payments have become normal for people especially those who are living in city areas. The government must take the security steps while they are preparing for a cashless society. I believe that majority of people prefer a convenience and a cost-savings society. A cashless society will do us more good than harm, which is why I think cash currency should be eliminated for a bright and modern future.

Digital Currency and Its Impact on Monetary Policy

Since the catastrophic global financial crisis, which was directly caused by the burst of the housing bubble and mortgage default, in 2008, the Federal Reserve alone has injected roughly 7.6 trillion dollars into the global economy by the end of 2019 in order to facilitate the recovering of the economy and mitigate recessions. An alternative asset which is called digital currency or cryptocurrency emerged in 2009 due to the rising distrust of central banks and the worries over inflation. The first and the most influential digital currency developed by Satoshi Nakamoto is called Bitcoin. Featuring decentralization, distributed ledger and fixed eventual total supply, this new type of currency has got a lot of interest over the past decade. Recently, discussions about an evolved version of digital currency, Central Bank Digital Currency, is in full swing. Economists and policymakers all over the world are exchanging ideas and insights on how to bring digital currency, especially Central Bank Digital Currency, onto the next stage.

In this paper, I first introduce digital currency and monetary policy briefly. Then I mainly focus on expressing my insights on what impact digital currency could potentially have on monetary policy. In these sections, I divide digital currency into two categories: private-sector issued digital currency and Central Bank Digital Currency (CBDC). By looking at the present wide-scale global economy and current protocols of digital currencies (mainly, Bitcoin), I come to conclude that digital currency is very unlikely to affect monetary policies. Even the impact of central bank digital currencies on monetary policy and macroeconomics is neutral.

The Emergence of Bitcoin is Inevitable

The concept ‘digital currency’ is somewhat ambiguous since, generally speaking, digital currency is any type of currency that is available in digital form. The term ‘digital currency’, however, I refer to in this paper most of the time has a specific name called virtual currency. To be clearer, digital currency, in its broad sense, is any currency in digital form such as debit cards, e-currency. In its narrow sense, digital currency is a virtual currency, or so-called cryptocurrency, that is created based on the distributed ledger technology and encryption technique (Xinxiang Weng).

In January 2009, a Japanese who is pseudonymous as Satoshi Nakamoto published the white paper titled ‘A Peer-to-Peer Electronic Cash System’ which is the protocol of Bitcoin. Bitcoin, the most prominent digital currency at present, along with other descendants, have features that differ them from traditional currency such as private-sectors issued, internet-based, no central clearinghouses and intermediaries needed, total supply fixed by its current protocol, according to the Quarterly Bulletin, Bank of England (2014, Q3). Learning from the timing when Bitcoin was created, it is a byproduct of the 2008 financial crisis. In 2008, the plummet of real estate prices triggered the burst of the housing bubble and credit crush which caused panic and runs on banks, which consequently dragged the whole financial system into extreme liquidity shortage. In order to save the global financial system and prevent further recession, just the Federal Reserve itself has increased M1 money stock by 2.6 trillion dollars and M2 money stock by 7.5 trillion dollars by October 2019, not to mention other major central banks in the world such as Bank of Japan. Although the inflation rate in the U.S is still kept around 2% over the decade, worries over inflation and distrust on central banks bred the innovation of Bitcoin and other digital currencies because: 1) the protocol ensures the supply of these currencies is not controlled by any central bank (as known as decentralization) by the application of distributed ledger technology (DLT); 2) the supply is fixed; 3) encryption technique enhances privacy and security.

Decentralization is the ultimate goal chased by many people with free-market psychology. The fixed eventual supply ensures digital currencies relatively deflate over time. Under the premise of maturity of technology, disappointment and the desperate need for financial stability makes the innovation of digital currency almost inevitable. However, there is a lack of appropriate regulation and insufficient oversight. This causes the digital currency market chaos and has attracted the attention of governments.

Central Banks Tend to Issue Their Own Digital Currencies (CBDC)

With the impact of the rapid development of decentralized digital currencies such as bitcoin on the monetary policies of various countries, central banks in major countries recognize that even if they strengthen the supervision of private digital currencies through legislation, they can only protect users’ rights and prevent various types of criminal activities; but they cannot prevent the central bank’s monetary policy from being adversely affected by it. Therefore, while certain encrypted digital currencies represented by bitcoin have been tested by the market for their necessity, feasibility, and security, the central banks of some countries are taking action on exploring the possibilities of issuing their own CBDC.

Bank of England has been theoretically exploring the possible impact of CBDC on the overall economy since 2016. Economists from Bank of England suggest central banks issue their own digital currency, claiming that “…it (CBDC regime) leads to an increase in the steady-state level of GDP of almost 3%…” (Barrdear and Kumhof, 2019).

The People’s Bank of China has launched the CBDC prototype system, and the Digital Currency Institute belonging to the Central Bank has also been formally established in December 2016.

Monetary Policy

Every modern economy has its own monetary and fiscal policy. They both contribute to a sovereign state on influencing its economy. However, they take different paths. The monetary policy mainly controls the interest rate and money supply, whereas, the fiscal policy mainly controls government spendings and tax rates. In the United States, the Federal Reserve conducts monetary policy. “To promote maximum employment, stable prices, and moderate long-term interest rates – the three economic goals…by managing the level of short-term interest rates and influencing the overall availability and cost of credit in the economy. …Influences household spending, business investment, production, employment, and inflation in the United States” (federalreserve.org). In short, the Federal Reserve uses conventional and unconventional monetary tools to achieve both macroeconomic stability and financial stability.

Digital Currency is Unlikely to Affect Monetary Policy in Short Term

Most existing digital currency is not a currency issued by the central bank or public authority, and the circulation does not pass through the traditional commercial banking system. If it reaches a certain scale, the regulation and control of the central bank will be adversely influenced. The first is to weaken the effectiveness of the monetary policy. The prerequisite for the central bank’s regulation is the monopoly currency issuance right and the lender of last resort. By putting in or recovering the base currency, it regulates the liquidity of the banking system, affects short-term interest rates, and thus affects economic behavior such as savings and investment. When the digital currency reaches a certain size and functions as a currency in the economy, its quantity and price will have a significant impact on the real economy, and the central bank lacks the ability to regulate the quantity and price of these currencies. The second is to affect the revenue of seigniorage. The issuance and circulation of digital currency will weaken the central bank’s monopoly on currency issuance, causing the central bank to lose seigniorage. The third is to reduce the accuracy of monetary indicators. Some digital currency payment networks may be an alternative to the existing payment system with central banks and commercial banks as the main body, and since the circulation of these currencies does not pass central banks, it will undermine the central bank’s ability to monitor fund flows and collect information through the existing payment system. Less sensitive to market information will, in turn, weaken central banks’ ability to conduct effective monetary policy.

In contrast to private-sector digital currencies, CBDC will have a positive impact on monetary policy if it is interest-bearing. It will create a new price-based monetary policy tool. The first is to help enhance the transmission of central bank policy interest rates to medium and long-term credit interest rates. The second is to help lower the interest rate. The current lowest limit of the nominal interest rate is zero. If the central bank digital currency is issued at the retail end and the use of large amounts of cash is abolished at the same time, a negative interest rate may be calculated on the central bank digital currency, or just simply charge a wallet storage fee on the central bank digital currency. According to authorities from the National Bureau of Economic Research, “Interest-bearing CBDC mitigating the need to deploy alternative monetary tools such as quantitative easing or to rely on fiscal interventions in order to restore price stability…With interest-bearing CBDC, there would no longer be a compelling need to maintain any inflation buffer” (Bordo and Levin, 2017).

However, neither private-sector digital currency nor CBDC is likely to affect current monetary policies in short term since the scale of digital currency (mainly Bitcoin) is limited and accounts for a tiny portion, which is roughly 0.23%, of the total amount of broadly defined money in the world (Raul, 2018).

Conclusion

Digital currency is an inevitable byproduct of the 2008 financial crisis. It has advantages as well as disadvantages. However, the existing digital currency regimes cannot make huge waves in the global market because of their limited sizes. They only fulfill the roles of money for a tiny portion of people. Some practical examples such as Venezuelans use Bitcoin to protect their individual financial stability against the hyperinflation happens in their country. Another form of digital currency, Central Bank Digital Currency, will only have a positive impact on monetary policy in the future since Central Bank Digital Currency is issued by central banks, they will deliberately scheme and regulate its usage in order to retain control over the monetary system and ensure not to harm vested interest groups. Most governments will not allow any digital currency system, even CBDC, to substitute the traditional fiscal money system in short term. There is still a long way towards a decentralized currency system.

Cryptocurrency: Arguments in Its Favor and Increased Media Attention to It

Usually, when we make a transaction, the payment is processed by a credit card company or a bank. However, this could lead to risks such as protecting data from hackers, taking longer for international payments and expensive. Therefore, cryptocurrency helps to keep data secure and protected using mathematics as it only exists in computer networks. With digital currency like Bitcoin and Ethereum, the media attention has gained as there’s public knowledge in the modern marketplace.

The main argument in favor of cryptocurrency is blockchain technology providing secure area meaning there’s an advantage of high-level security. Blockchain technology is a ledger in a network of computers that is open to anyone. However, once data has been recorded inside a blockchain it becomes exceedingly difficult to change it. This system has been particularly useful as it helps track money in individual accounts and have easy access to any stolen coins. Also, the use of blockchain technology has helped to address fraud risks through technology because the transactions are transparent and cannot be changed. By providing strong security, more consumers are leaning towards cryptocurrency to keep their finance safe as hackers find it difficult to invade the system due to high focus on cyber-attack. Furthermore, it helps individuals during auditing as it assures you that no transaction can be changed. Furthermore, they provide Cryptocurrency Security Standard (CCSS) which is required for all information system that uses cryptocurrency. It has enabled cryptocurrencies like Bitcoin to have high level of security and transparency when dealing with transaction.

On the other hand, cryptocurrency is highly volatile making the prices fluctuate quickly. As it lacks intrinsic value, cryptocurrency is not backed by traditional currency as its purely digital currency. This means that their value is completely unpredictable and hard to measure. Although cryptocurrency gets lots of attention from the media, it is still relatively small which means it easy to take advantage and manipulate for prices, their customers, liquidity, and price feeds. This could lead to disbalance and decline for the market as prices have higher impact due to small market size and therefore impact investors. Having a volatile nature, the market stays unpredictable and going to affect investments as it becomes too risky to invest in cryptocurrency as there’s fluctuation in prices. From cryptocurrency currency chart data, it shows prices tend to fluctuate 2%-10% per days. This means that risk-averse people are unlikely to invest in the currency as it could lead them to financial difficulty.

In conclusion, this essay has discussed both arguments about cryptocurrency and the interest it gained from media over the past years. Cryptocurrency has changed the way we save, invest, and buy. As the world is developing cryptocurrencies are known to be new technology and dominate the future currency. Due to its high security, it attracted a large number of spectators and the media. This means that it will be widely acceptable and available globally as the demand increases. This creates a positive future for cryptocurrency as the market improves and expands.

Essay on Currency of the United States

Did you know there are only two people that weren’t presidents on our U.S. dollars? There are some familiar faces on the U.S. dollars as we see today. There were presidents on U.S. dollars, but not on every dollar, two were never presidents at all actually. Benjamin Franklin and Alexander Hamilton are on the ten and one hundred dollar bills. In fact, Franklin and Hamilton were not U.S. presidents at all.

According to www.treasury.gov, U.S. currency has the following: George Washington on the one dollar bill, Thomas Jefferson on the two dollar bill, Abraham Lincoln on the five dollar bill, Alexander Hamilton on the ten dollar bill, Andrew Jackson on the twenty dollar bill, Ulysses Grant on the fifty dollar ill, and Benjamin Franklin on the one hundred dollar bill. This proves that not only presidents are on our U.S. currency, but two are the founding fathers of the United States. The two founders are Benjamin Franklin and Alexander Hamilton, which is a big name to live up to. There are a variety of currency notes that are no longer made. These include the five hundred dollar bill with the picture of William McKinley, the one thousand bill with a picture of Grover Cleveland, and the $5,000 bill with a picture of James Madison, the $10,000 bill with a picture of Salmon Chase, and the $100,000 currency note with a picture of Woodrow Wilson. These currency notes all are very rare and history bills to find in the U.S. today.

According to www.advfn.com, the Coinage Act of 1792 helped put together a very neat monetary system that introduced coinage in gold, silver, and copper. Paper notes or greenbacks were introduced into the system in 1861 to help finance the Civil War. According to www.thebalance.com, the value of money is determined by the demand for it, just like the value of goods and services. There are three ways to measure the worth of the dollar today. The first is how much the dollar will buy in other currency, foreign countries to be exact. That is what called the exchange rate. Forex traders on the foreign exchange market decides different kind of exchange rates in other countries. They take into account supply and demand, and then factor in their expectations for the future.

Furthermore, before notes/bills were introduced or created there were coins. Coins was first made in 1793. All of the were made from 100 percent from copper. According to www.thesprucecrafts.com, also some coins are made with ridget rounds and the sum are made with smooth rounds to tell the difference. This helps people out that are blind or nearly blind.

In conclusion, U.S. currency is what helps people take care of their daily needs. Without currency it would be a disaster in the U.S. Money keeps everything running in the same cycle as it is today. Overall, currency is an important item in this free country we call America.

What Is Money? Essay

As used in everyday conversation, the word money can mean many things, but to economists it has a very specific meaning. To avoid confusion, we must clarify how economists’ use of the word money differs from conventional usage. Economists define money (also referred to as the money supply) as anything that is generally accepted as payment for goods or services or in the repayment of debts. Currency, consisting of paper bills and coins, clearly fits this definition and is one type of money. When most people talk about money, they’re talking about currency (paper money and coins). If, for example, someone comes up to you and says, “Your money or your life,” you should quickly hand over all of your currency rather than ask, “What exactly do you mean by ‘money’?”.

To define money merely as currency is much too narrow a definition for economists. Because checks are also accepted as payment for purchases, checking account deposits are considered money as well. An even broader definition of money is needed because other items, such as savings deposits, can, in effect, function as money if they can be quickly and easily converted into currency or checking account deposits. As you can see, no single, precise definition of money or the money supply is possible, even for economists.

To complicate matters further, the word money is frequently used synonymously with wealth. When people say, “Joe is rich—he has an awful lot of money”, they probably mean that Joe not only has a lot of currency and a high balance in his checking account, but also has stocks, bonds, four cars, three houses, and a yacht. Thus, while ‘currency’ is too narrow a definition of money, this other popular usage is much too broad. Economists make a distinction between money in the form of currency, demand deposits, and other items that are used to make purchases, and wealth, the total collection of pieces of property that serve to store value. Wealth includes not only money but also other assets such as bonds, common stock, art, land, furniture, cars, and houses.

People also use the word money to describe what economists call income, as in the sentence “Sheila would be a wonderful catch; she has a good job and earns a lot of money”. Income is a flow of earnings per unit of time. Money, by contrast, is a stock: it is a certain amount at a given point in time. If someone tells you that he has an income of $1,000, you cannot tell whether he earns a lot or a little without knowing whether this $1,000 is earned per year, per month, or even per day. But if someone tells you that she has $1,000 in her pocket, you know exactly how much this is. Keep in mind that the money refers to anything that is generally accepted as payment for goods and services or in the repayment of debts, and is distinct from income and wealth.

Whether money is shells or rocks or gold or paper, it has three primary functions in any economy: as a medium of exchange, as a unit of account, and as a store of value. Of the three functions, its function as a medium of exchange is what distinguishes money from other assets such as stocks, bonds, and houses.

In almost all market transactions in our economy, money in the form of currency or checks is a medium of exchange; it is used to pay for goods and services. The use of money as a medium of exchange promotes economic efficiency by minimizing the time spent in exchanging goods and services. To see why, let’s look at a barter economy, one without money, in which goods and services are exchanged directly for other goods and services.

Take the case of Ellen the Economics Professor, who can do just one thing well: give brilliant economics lectures. In a barter economy, if Ellen wants to eat, she must find a farmer who not only produces the food she likes but also wants to learn economics. As you might expect, this search will be difficult and time-consuming, and Ellen might spend more time looking for such an economics-hungry farmer than she will teaching. It is even possible that she will have to quit lecturing and go into farming herself. Even so, she may still starve to death. The time spent trying to exchange goods or services is called a transaction cost. In a barter economy, transaction costs are high because people have to satisfy a “double coincidence of wants”—they have to find someone who has a good or service they want and who also wants the good or service they have to offer. Let’s see what happens if we introduce money into Ellen the Economics Professor’s world. Ellen can teach anyone who is willing to pay money to hear her lecture. She can then go to any farmer (or his representative at the supermarket) and buy the food she needs with the money she has been paid. The problem of the double coincidence of wants is avoided, and Ellen saves a lot of time, which she may spend doing what she does best: teaching.

As this example shows, money promotes economic efficiency by eliminating much of the time spent exchanging goods and services. It also promotes efficiency by allowing people to specialize in what they do best. Money is therefore essential in an economy: it is a lubricant that allows the economy to run more smoothly by lowering transaction costs, thereby encouraging specialization and division of labor. The need for money is so strong that almost every society beyond the most primitive invents it. For a commodity to function effectively as money, it has to meet several criteria:

1. It must be easily standardized, making it simple to ascertain its value;
2. It must be widely accepted;
3. It must be divisible, so that it is easy to ‘make change’;
4. It must be easy to carry;
5. It must not deteriorate quickly.

Objects that have satisfied these criteria have taken many unusual forms throughout human history, ranging from wampum (strings of beads) used by Native Americans, to tobacco and whiskey, used by the early American colonists, to cigarettes, used in prisoner-of-war camps during World War II. The diverse forms of money that have been developed over the years are as much a testament to the inventiveness of the human race as are the developments of tools and language.

What Distinguishes Money from Other Assets in the Economy?

The word ‘money’ can be used in many different ways, but it has a very specific meaning to economists. Economists define money as anything that is generally accepted as payment for goods or services or in the repayment of debts. Just saying that money is currency is not a good enough definition for economists. Economists make a distinction between money in the form of currency, demand deposits, and other items that are used to make purchases, and wealth the total collection of pieces of property that serve to store value. Income is a flow of earnings per unit of time. Money, by contrast, is a stock, it is a certain amount at a given point in time. “If someone tells you that he has an income of $1,000, you cannot tell whether he earns a lot or a little without knowing whether this $1,000 is earned per year, per month, or even per day. But if someone tells you that she has $1,000 in her pocket, you know exactly how much this is. Whether money is shells or rocks or gold or paper, it has three primary functions in any economy: as a medium of exchange, as a unit of account, and as a store of value. Of the three functions, its function as a medium of exchange is what distinguishes money from other assets such as stocks, bonds, and houses”.

Money used as a medium of exchange furthers economic efficiency by reducing the time spent in exchanging goods and services. It also helps efficiency by allowing people to concentrate on what they do best. “Money is therefore essential in an economy. It is a lubricant that allows the economy to run more smoothly by lowering transaction costs, thereby encouraging specialization and division of labor. The need for money is so strong that almost every society beyond the most primitive invents it”. For something to operate productively as money, it has to meet multiple benchmarks: “1) It must be easily standardized, making it simple to ascertain its value; 2) it must be widely accepted; 3) it must be divisible, so that it is easy to ‘make change’; 4) it must be easy to carry; and 5) it must not deteriorate quickly”. Objects that have fulfilled these benchmarks have taken many abnormal forms throughout human history, “ranging from wampum (strings of beads) used by Native Americans; to tobacco and whiskey, used by the early American colonists; to cigarettes, used in prisoner-of-war camps during World War II”. The various forms of money that have emerged over the years are as much a testament to the inventiveness of the human race as are the developments of tools and language.

The second role of money is to provide a unit of account, that is, money is used to measure worth in an economy. “Imagine how hard it would be in a barter economy to shop at a supermarket with 1,000 different items on its shelves and be faced with deciding whether chicken or fish is a better buy if the price of a pound of chicken were quoted as 4 pounds of butter and the price of a pound of fish as 8 pounds of tomatoes”. The answer to the problem is to present money into the economy and have all prices set in terms of units of that money. We can see that using money as a unit of account lowers transaction costs in an economy by reducing the number of prices that need to be considered. The benefits of this function of money grow as the economy becomes more complex.

Money also functions as a store of value; it is a repository of purchasing power available over time. A store of value is used to retain purchasing power from the time income is obtained until the time it is spent. This function of money is useful because most people do not want to spend their income right when they receive it, but would rather wait until they have the time or the want to shop. “Any asset—whether money, stocks, bonds, land, houses, art, or jewelry—can be used to store wealth. Many such assets have advantages over money as a store of value: They often pay the owner a higher interest rate than money, experience price appreciation, and deliver services such as providing a roof over one’s head”. What is the point of holding any money at all if assets are a more beneficial store of money? The answer to this question relates to the important economic concept of liquidity, which is the relative ease and speed with which an asset can be turned into a medium of exchange. Money is the most liquid asset of all because it is the medium of exchange. Other assets involve transaction costs when they are converted into money. How good a store of value money, is depends on the price level. “During times of inflation, when the price level is increasing rapidly, money loses value rapidly, and people become more unwilling to hold their wealth in this form. This is especially true during periods of extreme inflation, known as hyperinflation, in which the inflation rate exceeds 50% per month”.

We can obtain a better picture of the functions of money and the forms it has taken over time by looking at the evolution of the payments system, the method of conducting transactions in the economy. The payments system has been evolving over centuries, and with it the form of money. Precious metals were the primary means of payment and the main form of money at one point. Later, paper assets such as checks and currency became the main form of money to be used in the payments system. It helps to know how the payment system evolved to gain an understanding of where the system is heading. “For any object to function as money, it must be universally acceptable; everyone must be willing to take it in payment for goods and services. Money made up of precious metals or another valuable commodity is called commodity money, and from ancient times until several hundred years ago, commodity money functioned as the medium of exchange in all but the most primitive societies”. The biggest problem with a payments system based on precious metals is that such a form of money is very heavy and is hard to transport from one place to another. After precious metals, the next development in the payments system was paper currency. Paper currency has the advantage of being much lighter than coins or precious metal, but it can be accepted as a medium of exchange only if there is some trust in the authorities who issue it and if printing has reached a sufficiently advanced stage that counterfeiting is extremely difficult. Countries have the ability to change the currency they use whenever they want since currency has become a legal arrangement. “Major drawbacks of paper currency and coins are that they are easily stolen and can be expensive to transport in large amounts because of their bulk”. To stop this from happening, the next way the payment system evolved was by creating checks within the development of modern banking.

A check is an instruction from you to your bank to transfer money from your account to someone else’s account when he or she deposits the check. Checks allow transactions to take place without the need to carry around large amounts of currency. The introduction of checks was a major innovation that improved the efficiency of the payments system. The use of checks thus reduces the transportation costs associated with the payments system and improves economic efficiency. Another advantage of checks is that they can be written for any amount up to the balance in the account, making transactions for large amounts much easier. Checks are also advantageous in that loss from theft is greatly reduced and because they provide convenient receipts for purchases. There are two big problems that appear when you have a payments system based around checks. “First, it takes time to get checks from one place to another, a particularly serious problem if you are paying someone in a different location who needs to be paid quickly. If your need for cash is urgent, this feature of paying by check can be frustrating. Second, the paper shuffling required to process checks is costly”.

“The development of inexpensive computers and the spread of the Internet now make it cheap to pay bills electronically. Banks now provide websites at which you just log on, make a few clicks, and thereby transmit your payment electronically. Estimated cost savings when a bill is paid electronically rather than by a check exceed one dollar per transaction. Electronic payments technology can substitute not only for checks but also for cash, in the form of electronic money (or e-money)—money that exists only in electronic form. The first form of e-money was the debit card. Debit cards enable consumers to purchase goods and services by electronically transferring funds directly from their bank accounts to a merchant’s account. Most banks issue debit cards”.

Economists need an accurate definition that tells them which assets should be included to measure money. The problem of measuring money has recently become especially crucial because extensive financial innovation has produced new types of assets that might properly belong in a measure of money.