Digital currency makes influence on global monetary system, which has been developed by private and civil bodies.
Digital currency is considered as an asset stored in electronic form that performs the same function as the physical currency. Digital currency comprises cryptocurrency shaped in the form of digital record (Bitcoin, Litecoin, Dogecoin, Peercoin) and virtual currency (Linden Dollars, WoW Gold). They differ from each other due to issuers and functions (dbc.wroc.pl).
Cryptocurrency as a digital monetary system is managed by P2P network and is protected by a powerful code. It may be relocated to any global location. Network transactions are carried out and checked immediately.
It should be noted that the financial ecosystem remains always open. It is decentralized. No central body bears responsibility and supervises it or interferes in private transactions (globalfxm).
It should be noted that the cryptocurrency liquidity (for example Bitcoin) has changed mechanisms for wealth collection. Therefore, cryptocurrency has widely spread thanks to its convenience, quick transaction, fashion tendency, operational and confidentiality characteristics.
Digital money illustrates the essence of money-credit policy that is focused on money flexibility. Amid global tendencies, central banks examine opportunities of issuing sovereign digital currency (Canada, European Central Bank), People’s Bank of China carries out experiments for technical specifications. Bank of England carries out research works for many years. Commerce Bank of Switzerland (UBS) plans to implement digital currency project jointly with 6 major commercial banks (Barclays, CIBC, Credit Suisse, HSBC, MUFG and State Street). The issuance is planned in 2018. centralbanking).
The world’s major banks have taken first steps for moving to blockchain system (to the direction of Bitcoin). According to forecasts, for the coming 10 years, the ratio of Blockchain in global GDP will be 10%.
The research works prove that the market of cryptocurrency continues growing after a 25% downfall. According to reports by research organizations, more than 1106 cryptocurrencies are recorded worldwide and their market capitalization makes up 159.8bln USD.
Along with global processes, both private and civil societies have been also shaped in Georgia for use of digital money. Digital money (namely, Bitcoin) enables to trade, exchange, store, collect products and invest in investments instruments attached to Bitcoin price.
It should be noted that digital monetary system does not have stable and state-dominated monetary hierarchy. However, its advantage is diverse and among them we should note (oecd):
- Assessment of money aggregates and money turnover speed in economy;
- Checking a huge volume of transactions in everyday regime in real time in confidential environment.
- Supervision over money aggregates, efficiency of policy of correction for macroeconomic purposes;
The research works prove that amid spread of digital money, key challenges are as follows:
- fixation of nominal expression, universal attainability;
- its recognition as a legal payment method for all public transactions (WEF, 2017).
- Growth in central bank’s efficiency, fulfillment of base functions;
- Efficiency of digital money as an exchange instrument, safety of its storage, stability of its value in economic and financial operations (voxeu);
- Weakening potential of macroeconomic instruments; problem with management (taking necessary decisions and implementation) on global level;
It should be noted that today a huge volume of money generates real challenges in the world. The fact is that the global market capitalization of Bitcoin is an important part of money mass.
Therefore, there are more questions than answers to the issues such as: volume of money in turnover and efficiency of huge money mass. Whether it makes influence on inflation level, stability of prices (bis.org);
Based on summary of issues, we can note that in the field of digital currency and payment technologies, amid quick paces of innovations, Government should take active steps to get prepared for global digital challenges.
The current global developments show that digital money cannot make influence on national monetary system, but in long-term perspective the inactive position of our central bank may raise certain risks. To ensure healthy and valuable environment for the future challenges, National Bank of Georgia (NBG) should take the following steps in digital monetary field:
- Conduct research works;
- Arrange legislative environment;
- Arrange rules and standards for shaping digital monetary system;
- Shape a system of values that will consider a digital money as a part of money-credit and currency policy.
Rati Abuladze Doctor of Economics