Cryptocurrency has been hailed as the currency of the future but it still has a long way to go to replace the U.S. dollar. As stated by the International Monetary Fund’s (IMF) chief economist Gita Gopinath, the digital currency has made it easier and significantly reduced the transition cost from cash to electronic payments, but to say they have cut expense costs among various currencies is overbearing. Her report published in Financial Times on 6 January stated that the stability and safety of the dollar is the reason for its dominance in the international market.
The international monetary system according to the economist is a work in progress. Provisions have to be made to provide for cheaper and quicker cross border payment systems. The present cross border payment system is slow, expensive and troublesome to even those who can afford it.
Digital Currencies and their Ongoing Rise
Cryptocurrencies have been on a whirlwind rise ever since its inception in the market. Countries like China even though skeptical of crypto are working to launch their own digital national currencies. A report published on 5 December revealed blockchain technology as a national priority for the growing nation.
The USD Domino Effect
Gopinath also commented on the rising prominence of the dollar in the trading and banking sector which inadvertently leads to an increase in dollar usage. Euro, on the other hand, hasn’t been able to match up with its counterpart, the USD, even though it has been the leading contender for the last 20 years. Euro’s impact on the USD has been significantly moderate owing to inadequate risk-sharing, financial segregation and mediocre rise on the Euro’s governance module. The status of the dollar meanwhile is backed up by several institutions, the governing law body, and investor protection. Thus, increasing the supply of another national currency like the Euro would not be enough to increase its dominance in the world market.