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The Financial Express

Digital currency's prospect


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Monetary transactions have already gone digital. Through the Mobile Financial Services (MFS), common people have meanwhile got used to doing banking transactions without much hassle. The money the MFS transfer is the electronic money (e-money) kept in the bank's computer system. 

But the currency issued by the government such as the taka in Bangladesh is still the universally accepted medium of exchange for goods and services. Without the backing of the taka, the MFS would not be able to operate. Though transaction of money in cash is being gradually replaced by e-money if only due to the convenience of the mode (of transaction), money is yet to go fully digital. Since money draws its worth as the universal medium of exchange from the order/fiat of the government that issues it, the currencies in common use are also called fiat money. But if money goes fully digital, will then the central bank, or the government, for that matter, still have the control of it (digital money)? In fact, this is the core issue being discussed seriously at the moment in Bangladesh as elsewhere in the world. 

Actually, the interest in money in digital format grew after people began to distrust the existing financial system after the 2007-08's global financial crisis when money worth about US$2 trillion simply evaporated from the global economy. And, of course, that money belonged to the low-income people who trusted the prevailing financial system. 

It is exactly against this background that the famous 'Bitcoin White Paper' was published on a website entitled, 'Cryptography Mailing List' in October, 2008. The name of the publisher was Satoshi Nakamoto. However, the identity of who is Satoshi Nakamoto-a person, or a group of persons or any other entity-is still unknown.  

Even so, its argument in favour of a decentralised financial system through the digital 'Bitcoin' that will not require any authority to issue or trustworthy entities like banks as intermediaries to transact captured the public's imagination. In that sense, Bitcoin is a peer-to-peer (in which each computer in the transactional network acts as a server without the need for a central server) version of the electronic cash.  

In this format, financial transaction between parties/persons can take place directly. And the transactions are secured through what is called, the Proof-of-Work (PoW), a decentralised consensus mechanism that requires a person to solve an arbitrary mathematical puzzle to enter the network. However, solving the math puzzle requires huge amount of computational effort and expenditure of energy, which is a disincentive to the malicious users of the system including spammers. But hackers still remain a potential threat to the crypto currencies.  

Another positive side of digital coins like Bitcoin, ether/ETH, etc based on PoW is that they are powered by blockchain technology, a secure digital ledger (record of transactions) created and maintained by the user public. Some countries have meanwhile adopted Bitcoins or crypto currencies as legal tender, the first among them being El Salvador.  

During his presentation of the budget for the financial year 2022-23, the finance minister of Bangladesh is also learnt to have said that the feasibility of introducing digital/crypto currency in Bangladesh would be examined by the Bangladesh Bank (BB), the country's central bank.  

Since the existing digital currencies have the potential for volatility (regarding their prices) as they have no intrinsic value and lack regulatory authority, the version of the virtual currency in government's consideration is, obviously, one that is issued and controlled by the central bank. It will basically be a digital version of a part of the prevailing fiat currency, taka. The amount of money thus digitised will be backed by some asset as is the case with taka. However, acceptance of this kind of digital money by the public may take some time.   

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