Cryptocurrency has been hailed for its putative potential to simplify the world’s financial services networks and increase the number of people who have access to them. So far, however, its prominence has resulted from the fact that it could be used as a reserve of wealth than as a medium of the actual trade. The gap is quickly closing as central banks and private organizations issue regulated digital currencies for use in everyday transactions in states like Michigan.
Recent announcements from the Federal Reserve System indicate that the project to create a “digital dollar” is entering a more in-depth period of inquiry. More than 80% of national central banks are involved in trial programs or other forms of central bank digital currency (CBDC) initiatives.
In an attempt to improve liquidity and streamline settling throughout the expanding crypto ecosystem, several private, steadied cryptocurrencies, also known as stablecoins, have surfaced outside of state-sponsored channels.
Currency in the Digital Realm
The concept of a digital currency, which would see the elimination of physical cash in favor of digital tokens, has been around for over 25 years. DigiCash (1989) and e-gold (1996), two of the earliest attempts at digital currency, were distributed by government bodies.
By introducing a distributed (blockchain-based) database for transaction implementation and record keeping and by launching a currency that is not subject to the oversight of any central bank, Bitcoin fundamentally changed this paradigm in 2009. There are now thousands of comparable autonomous coins, which account for daily trade volumes in the billions of dollars worldwide.
Even though the total market value of all cryptocurrencies now surpasses $2 trillion, their impracticality as a medium of exchange is hindered by their extreme price fluctuation, strong price connection to Bitcoin, and usually slow transaction completion times.
Stablecoins are digital currencies that aim to fix these problems by being pegged to an underlying asset and backed in whole or in part by fiat currencies issued by governments (like the US dollar, UK pound, or Euro), highly liquid reserves (like those held by governments), or commodities (like precious metals). In the first six months of 2021, nearly $3 trillion was traded using stablecoins like Tether and USDC.
Stablecoins have gained popularity quickly over the past few years, prompting central banks to increase their research into developing their own steady digital currency. Concerns about the effect privately issued stablecoins could have on financial stability and conventional monetary policy inspired some people to develop CBDCs to expand people’s access to central bank money, foster greater financial inclusion, and lower payment friction.
How Can Cryptocurrency and CBDC Impact States Like Michigan?
The impact of cryptocurrencies and CBDCs on states like Michigan cannot be overlooked. Cryptocurrencies have caused a stir in financial markets recently, providing opportunities and risks for traders, investors, and businesses. As a result, these assets are now regulated at both state and federal levels, including in Michigan.
Cryptocurrency issues with compliance are constantly changing both in Michigan and other states. A Bitcoin-related plan that would create an online marketplace where users could purchase or trade virtual money using credit cards or bank accounts was recently the subject of comments before the Senate Economic and Small Business Development Committee. This could open up new possibilities for those looking to trade or deal with coins in the state.
Although this technology entails risks, there is huge potential for growth in this area if regulated correctly. Cryptocurrencies have the potential to significantly benefit Michigan’s economy over time, resulting in new employment and investment opportunities, along with increasing consumer confidence in digital currencies like Bitcoin and Ethereum.
Coexistence or Dominance: What Could Happen in the Future?
The Massachusetts Institute of Technology (MIT) and the Federal Reserve Bank of Boston conducted a study on the impact of central bank digital currencies on country economies as part of the Digital Currency Initiative (DFI). Their study indicates that because CBDCs can be used anywhere in the world without the requirement for local accounts or currency translation, they can offer quicker processing times than conventional banking services and charge lower transaction costs than debit cards or bank payments.
There will be repercussions for more established crypto assets from the developments surrounding CBDCs and cryptocurrencies. Knowing the differences between them may help determine the future course of digital currencies in global financial markets. While tighter government oversight of monetary policy lowers risk for citizens, it also restricts their ability to conduct business as they see fit within the confines of their own nation. Even after all this, crypto is still accepted by a lot of online companies. The online casinos in Michigan, or even consumable franchises, adopted this payment method as an alternative payment option.
Final Thoughts
Cryptocurrencies and CBDCs are reshaping our understanding of international finance and showing tremendous potential for boosting Michigan’s economy. The convenience and cheap cost of these digital payment methods are just two of their many advantages. Michigan residents can use them securely to gain access to previously unaffordable financial services if they are regulated and educated properly. In fact, CBDCs may clear the way for more people to have access to the financial system by facilitating quicker payments at lower costs.
