How digital currencies have challenged the global economic order

To achieve the full potential of digital currencies, it is crucial for countries to sign trade agreements to enable market access for private issuers of digital currencies

Digital currencies are transforming the financial landscape by ushering efficiency in payment settlements and driving financial inclusion.
Digital currencies are transforming the financial landscape by ushering efficiency in payment settlements and driving financial inclusion.

As digital currencies pick up a dominant role globally, the probability of its usage has increased. “Digital currencies can be used for the purposes of free trade, autonomy from governmental purview, and other tenets. They are just another part of the global financial ecosystem and a digital asset,” Ragopal Menon, vice president, WazirX, told FE Digital Currency.

It is believed that digital currencies could alleviate the issue of ‘de-risking’. This refers to a situation where global financial institutions may restricti business relationships with remittance companies and smaller local banks in certain regions of the world. “Digital currencies have transformed the financial landscape by ushering efficiency in payment settlements and driving financial inclusion. Ripple’s recent report ‘Crypto Trends in Business and Beyond 2022’  highlighted that 76% of financial institutions are expected to use crypto in the next three years,” Sharat Chandra, vice president, Research and Strategy at blockchain-based identity management platform EarthID, said.

As per industry observers, the global trade finance gap grew to $1.7 trillion in 2020, according to a survey released by the Asian Development Bank (ADB), during the pandemic which heavily impacted Small and Medium Enterprises (SMEs). “In India, crypto tax, TDS, were implemented besides inability for fresh traders to establish records with banks. An impending recession and global order can not be ignored. However, the crypto market is crawling and digital currencies could provide alternate credit information for trade finance,” Menon stated.

Furthermore, to achieve the full potential of digital currencies, it will be crucial for countries to sign trade agreements to enable market access for private issuers of digital currencies. “Digital currencies could cause an increase in efficiency for cross-border payments. Singapore, Australia, the UK, Chile, and New Zealand have championed such forward-looking trade agreements. El Salvador is treating Bitcoin as its legal tender. UAE has opened doors to global talent and investments with their highly-supportive crypto regulations,” Arpan Shah, founder, Prosppr, said.

According to industry experts, it is important for policy-makers to work effectively with technical service providers behind digital currencies. “An innovation-friendly regulatory framework is needed to ensure participation from institutional players, which will eventually drive mass adoption of digital assets,” added Chandra.

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