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  • 13 August, 2022

  • 8 Min Read

Digital Currency

Digital Currency

  • Over 7% of India's population possessed digital currency in 2021, according to a recent report by the United Nations Trade and Development Body (UNCTAD).
  • Additionally, India was rated eighth in terms of population ownership of digital currencies among the top 20 economies worldwide.

Image Source - Techcabal


  • When it comes to the percentage of the population that owns cryptocurrency, developing nations made up 15 of the top 20 economies.
  • On the list, Ukraine came in first, followed by Russia, Venezuela, Singapore, Kenya, and the United States.
  • During the Covid-19 pandemic, cryptocurrency use multiplied globally, particularly in developing nations.

Issues Highlighted by the Study

  • Private digital currencies are unstable financial assets that can increase social risks and costs while also rewarding some users and facilitating remittances.


  • Because these digital currencies are not regulated, there has been a sharp increase in demand for them in developing nations because they make remittances easier and serve as an inflation hedge.

Volatile System:

  • Recent market shocks in the digital currency space indicate that there are private dangers associated with holding cryptocurrency, but if the central bank intervenes to preserve financial stability, the issue becomes a public one.

Risks to Monetary Sovereignty:

  • The monetary sovereignty of nations may be at risk if cryptocurrencies take off as a common form of payment and perhaps informally replace national currencies (a process known as a crypto nation).

Undermine Local Policies:

  • In developing nations, cryptocurrencies can make it more difficult to mobilize domestic resources.

What are the Suggestions Highlighted by the Study?

  • Remittances can be made easier by the government, but they can also make it easier to evade and avoid taxes by allowing illicit flows.
  • The study urged authorities to take action to stop the spread of cryptocurrencies in emerging markets, including ensuring thorough financial regulation of cryptocurrencies through the regulation of crypto exchanges, digital wallets, and decentralised finance, as well as by forbidding regulated financial institutions from holding cryptocurrencies (including stablecoins) or providing customers with related products.
  • Additionally, it asked for curbs on digital currency promotion, just like with other high-risk financial assets.
  • Providing a public payment system that is cost-efficient, dependable, and secure for the digital era;
  • Redesign capital controls to account for the decentralized, omnipresent, and pseudonymous aspects of digital currencies.
  • Implement global tax harmonization on digital currency tax procedures, legislation, and information sharing.

Digital Currency

  • A sort of money that can only be obtained digitally or electronically is known as a digital currency.
  • Other names for it include cybercash, electronic currency, digital money, and digital money.
  • It has no physical characteristics and can only be acquired digitally.
  • Digital currency transactions are carried out through the use of computers or electronic wallets linked to the internet or specific networks.
  • In contrast, tangible currencies have distinct physical properties and characteristics, such as banknotes and coins that have been produced.


  • Both centralized and decentralized digital currencies exist.
  • Fiat currency is produced and distributed centrally by a central bank and other governmental organizations and exists in physical form.
  • Decentralized digital money systems include well-known cryptocurrencies like Bitcoin and Ethereum.
  • Types: The electronic world uses a variety of currencies. There are primarily three types of currencies:
  • Cryptocurrencies
  • Digital currencies known as cryptocurrencies use cryptography to safeguard and validate network transactions.
  • The development of such currencies is managed and regulated through the use of cryptography.
  • A couple of instances of cryptocurrencies include Bitcoin and Ethereum.

Virtual currencies

  • Virtual currencies are unregulated digital currencies that are managed by developers or a founding organization made up of different process participants.
  • A predetermined network protocol can likewise be used to algorithmically govern virtual currencies.
  • A gaming network token is an illustration of virtual money, and its economics are established and managed by developers.

Central bank digital currency

  • Central bank digital currencies (CBDCs) are regulated digital currencies that are issued by a country's central bank.
  • A CBDC can be used in addition to or in substitution for conventional fiat money.
  • A CBDC only exists in digital form, in a contrast to fiat currency, which also exists in physical form.
  • A few of the countries considering introducing a digital version of their domestic fiat currencies are Uruguay, England, and Sweden.


Fast transaction time

  • The time required for transfers involving digital currencies is extremely quick because they typically operate inside the same network and complete transactions without the use of middlemen.

Do not require Physical Manufacturing & Saves costs:

  • Digital currencies do not need to build real production facilities, which is one of the many criteria for physical currencies. These currencies are also resistant to stains or physical flaws that can occur with real money.

Ease Implementation of Monetary and Fiscal Policy:

  • Under the current monetary system, the Central bank channels funds into an economy through a network of intermediaries, including banks and financial institutions. CBDCs can assist in getting around this system and letting a government organization pay people directly.


  • Because of their digital origin, digital currencies are vulnerable to hacking. Hackers have the ability to take digital currency from online wallets or alter the protocol, rendering them useless.
  • Volatile Value: Prices for digital currencies used in trading can fluctuate wildly.
  • The decentralized nature of cryptocurrencies, for instance, has led to the proliferation of weakly funded digital currencies, whose valuations are susceptible to jarring shifts depending on investor whims.

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Source: The Hindu

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