Could Cryptocurrency replace fiat money?

According to global market research brand Euromonitor International, consumer card payments initially surpassed cash alternatives for the very first time in 2016, registering $23.1 trillion globally in the process.

This is part of a wider trend in the financial services space, which have caused many to speculate that digital and cryptocurrency will ultimately supersede all existing payments and even take the place of fiat currencies in the global marketplace.

We’ll address this further in the post below, while asking whether cryptocurrency could ever replace fiat money in the real world?

The Rise of Cryptocurrency and the Challenges Facing its Adoption

While some have predicted that digital currencies will eventually become omnipotent, many mainstream economists have countered by viewing such tokens with more than a little disdain.

This outlook remains prominent to this day, despite the fact that some financial institutions have already softened their own approach and begun to incorporate cryptocurrencies to improve operational efficiencies and allow for more convenient payment options.

Ultimately, economists and central banks remain convinced that digital currencies will never fully replace fiat alternatives, although the sustained growth and evolution of the former could ultimately alter this position.

Certainly, a number of the historic challenges facing cryptocurrency have been overcome of late, as established tokens have become more stable and evolved to meet a wider number of more diverse applications. This has encouraged more investors to come on-board in recent years, while increasing the appeal of digital currencies on a far wider scale.

Digital tokens have become even more valuable during the recent pandemic, with its decentralised nature and disconnection from mainstream monetary policy helping it to emerge as a potential safe-haven throughout 2020.

So, although most cryptocurrencies remain inherently volatile, such tokens are also underpinned by increasingly solid and robust foundations.

Will Digital Tokens Really Supersede Fiat Currencies?

Interestingly, jurisdictions across the globe have sought to investigate the adoption of cryptocurrency in recent times, with the European Central Bank (ECB) offering a relevant case in point.

According to Christine Lagarde, the ECB is reviewing the implications of adopting cryptocurrency in the region’s economy, with the news delivered during an introductory speech at the Franco-German Parliamentary Assembly last week.

However, there’s a key distinction here, as Lagarde spoke about a digital Euro being developed to ‘complement’ traditional cash, rather than being used as an outright alternative.

Also, it’s interesting to note that there’s no discussion about using an existing token such as Bitcoin to serve this purpose, highlighting an underlying level of cynicism that continues to undermine even the leading asset class in this marketplace.

This also ignores the thousands of coins that exist in the modern age, including many that have a current market capitalisation of billions.

This suggests that the transition from fiat to digital currencies remains relatively unlikely and fraught with challenges at this stage.

However, the decision of large trading blocs such as the EU and the newly formed group in Africa to introduce bespoke cryptocurrencies could ultimately pave the way for such a change, especially as adoption becomes widespread and attitudes continue to change across the globe.

Back to top button