Through Future of ‘Global Currency’: Navigating Through Emerging Technologies and Uneven Geopolitics

The global economy is rapidly evolving. Complexities in supply chain, increasing transnational demand and the rise in funding for contingencies call for state-of-the-art methods for catering to its needs, especially in terms of transactions, like the implementation of blockchain for safe and reliable real-time transactions.

Illustration by The Geostrata

Nevertheless, this requires clarification on its legality, usage, significance, and implementation while pondering upon their scope– can such a transaction system be implemented globally? What are some of the challenges in its implementation, and why is it needed anyway?

CRYPTOCURRENCY- AN EMRGING FACE OF DIGITAL CURRENCY ?

Digital currency is becoming an avant-garde form of transaction money. As the name suggests, it is the digital alternative to traditional forms of money. A popular example of it is cryptocurrency, which has been in the scene for a decade from now. Equipped with blockchain technology, thus making scrutiny tough, and not being backed by any real assets, it derives its purchasing power from its community of users. In this comes Bitcoin, its well-known representative.

However, it is not a legal form of currency in many countries, like India, yet. Since cryptocurrencies function under a decentralised system of computers, which makes tracking impossible, as aided by blockchain technology, they have been widely used for illicit activities. Moreover, it has become synonymous with high price volatility, thus making its regulation a need of the hour.

Experts suggest that a digital currency should ideally be regulated by a central authority– preferably by a central bank whose one of the core functions is to maintain macroeconomic stability.

Thus, it would face a tradeoff between the adoption of emerging technologies and their risk that everyone in the economy could not bear.

PLAYING SAFE- RISING OF CENTRAL BANK DIGITAL CURRENCIES (CBDCs)

The introduction of central bank digital currencies (CBDCs) is gaining steam around the world. Unlike cryptocurrency, it is backed by real assets. Countries such as India, the Bahamas, Jamaica, and Nigeria have started rolling out CBDCs (Central Bank Digital Currencies). These CBDCs have the potential to induce financial inclusion and unify payment systems nationally.

On a transnational level, CBDCs can help facilitate collaboration with a common currency more efficiently through reduced transaction costs, rapid transaction speed and enhanced security, thus making trade easier among them. Developing countries need not face the brunt of the rising inflation rates of any developed nation’s currency, such as the US Dollar.

GLOBAL CURRENCY- IS IT FEASIBLE ?

The replacement of a digital, global currency with the national currency could be perceived as a dent to sovereignty. Other challenges that come along are that the development of technological infrastructure would need to be carried out by the countries, and not every country possesses the resources to build such an infrastructure. Cyberattacks remain a threat that should be dealt with strategically. The digital divide within a nation makes it difficult to implement a digital currency.

The cost of switching from a paper-based currency to a digital currency would be incurred by the nations. New banks and financial institutions would need to be built, and infrastructure would have to be established. Legal aspects such as the regulations of the currency, transactions, terms, and conditions for investment through the currency, and its usage would need to be defined. Large-scale adoption of the CBDC would still remain a challenge that must be dealt with.

POLITICS OF GLOBAL CURRENCY

However, its proponents would bring up the successful implementation of the Euro across the European Union. However, the scope of this discussion is broader. Can a uniform currency cover a world not as ‘homogenous’ as the European Union? For instance, an attempt to ‘de-dollarise’ was mooted by the BRICS nation, which consists of countries like, Brazil, the Russian Federation, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran, and United Arab Emirates.

This attempt to create a common currency was threatened by the then President-elect of the United States of America, Donald Trump, where the repercussions of creating a new currency would be the implementation of 100% tariffs during his administration. This move deterred the member nations from moving away from the dollar, although this prospect is not closed.

For the US, it would mean losing out on the transactions made to convert the currency to execute any trade with the country as the top 5 foreign exchange reserve holders–China, Japan, Switzerland, India and the Russian Federation– had a cumulative foreign exchange reserves of approximately USD 7000 billion as of 2023, most of them holding it in the form of US Dollar bills.  In conclusion, it can be seen that the development of currencies has gone hand and hand with the development of technology.

Be it the change from a barter system to an economy of metal coins, an economy led by paper currency and coins, or digital currency of credit and banks, there has been a change in the medium of transaction with time.

New challenges arise with the development of a global currency but the phenomenon has equal or more positives too. The future of ‘global currency’ can be dissected into the possibility of developing a digital currency, a cryptocurrency, or even the emerging common currency of international organizations, such as that of the BRICS. Particular challenges exist in implementing these ideas of a global currency which could be solved with time, strategy, and diplomacy. However, the future of global currency will surely deal with more technology usage and global cooperation due to the globalisation of world politics and scenarios. 

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BY ADHIKSHITA VISHNOI

CENTRE FOR TRADE AND DEVELOPMENT

TEAM GEOSTRATA

info@geostrata.com