Digital currency, through commercial banks, saw significant use during Covid-19. Moody’s Investors Service predicts that banks will remain dominant in the payment industry despite new payment methods.
Commercial bank money benefited greatly from the global movement away from the usage of real currency that the Covid-19 epidemic brought about. Its use increased significantly. This type of digital currency is currently by far the most common because it can still be redeemed for actual cash and is stored in a bank account. In the meantime, a number of additional new digital payment methods have emerged, but none, according to Moody’s Investors Service, will challenge the dominance of banks as a source of payment.
Cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), and mobile money have been popular in recent years. As each product is adopted, the money landscape will split. According to the study “DeFi & Digital Assets,” central bank-issued and commercial bank money may remain the most extensively utilized types of money due to trust.
Moody’s Investors Service believes new payment alternatives may assist commercial bank products rather than replace them. Instant payment systems, digital wallets, and tokenized deposits can move money faster and cheaper. These changes also cause banks new problems.
New kinds of money might be able to profit from the inertia of financial institutions. The global commercialization of fast payment systems has been sluggish for many. It is difficult to monetize these payment services without hurting already-existing revenue sources.
Only 11% of all euro credit transfers in the EU were instant at the beginning of 2022, which prompted the Commission to adopt a legislative proposal to hasten the rollout.
The future belongs to CBDCs. Unless they are?
The most likely form of money to best compete with commercial bank money may come from CBDCs. This appears to be the safest way of payment at first glance. It does not rely on deposit insurance to keep the public confident, unlike commercial bank money.
Recent CBDC rollouts, however, have had mixed results. For instance, even though the nation is experiencing a cash crisis, only 0.5% of Nigerians utilized the country’s CBDC, the eNaira, in October 2022, and usage has not considerably increased since.
A former central bank employee of China expressed disappointment in December 2022 about the scant adoption of the nation’s digital yuan. During the Christmas season, Chinese city governments distributed millions of digital yuan as subsidies and consumption incentives to encourage adoption. But soon, some Chinese civil officials will be paid in digital yuan.
Overall, the capacity to fulfill the three essential tasks of money will determine any type of money’s success in the future ecosystem of digital currencies, including commercial bank money, CBDCs, stablecoins, and cryptocurrencies:
- The means of trade
- store of worth
- Measure of account
