What Is Fiat Currency?
Fiat currency is a kind of currency, issued by the government and regulated by a central authority such as a central bank. Such currencies(Paper money) act like legal tender and are not necessarily backed by a physical commodity. Instead, it is based on the credit of the economy.
Fiat currency first came into being at around 1000 AD in China before spreading to other parts of the world. Initially, currencies were based on physical commodities such as gold. It is only in the 20th century that President Richard Nixon stopped the conversion of U.S dollar into gold.
What are the Advantages and disadvantages of Fiat currency?
Though Fiat Currency is considered a stable currency, yet that is not always the case. Economic recessions over the years have highlighted some of the deficiencies associated with Fiat money. The fact that a central bank’s greater control at times does little to stop inflation or recession has led most people to believe that gold could be a much stable currency given its unlimited supply. The notion of central banks control over the economy and the constant increase in global prices create the need for cryptocurrencies.
Fiat Currency has remained legal tender in most countries in part because they are highly stable and controlled. Unlike other forms of money, such as cryptocurrencies(A cryptocurrency is a form of digital or virtual currency that can work as a medium of exchange. Being virtual in nature, they use cryptography technology to process, secure and verify transactions. Unlike Fiat currencies, cryptocurrencies are not controlled by any central authority such as a central bank. Instead, they are limited entries in a database such as a blockchain that no one can change or manipulate, unless certain conditions are met) and commodity-based currencies, fiat currencies are relatively stable. The stability allows regulators and governments to navigate the economy against recession and inflation.
Stability also allows Fiat currency to act as a means of storing value and facilitating exchange. It can also be used to provide a numerical account. Greater control also allows central banks to manage various economic variables such as liquidity, interest rates and credit supply key to ensuring a robust, stable economy.
E-cash(Electronic Cash/money) is stored online in a digital wallet and can be used to pay for goods and services and to instantaneously transfer funds between accounts and people through electronic means. In short, E-Cash is an internet-based system that facilitates the transfer of funds anonymously. Example of E-cash :
Types of Electronic Cash
Anonymous: This kind of e-cash works just like cash. Once a specific amount is withdrawn from an account, it can be used (or misused) without leaving a visible trail.
Identified: We know this category popularly as PayPal or WebMoney. The usage and transfer of money in these systems are not entirely untraceable.
Online: Obviously, it means that one needs to correspond with a bank (via the internet). The bank, then, gets in touch with the third party.
Offline: One can directly conduct the transaction without any interference from the bank.(Mobile Wallet )
Electronic Cash (E-Cash) are playing a more significant role in our daily life due to the rise in internet usage. Most of the money form today are is in electronics. However, with the new invention of the tool doesn’t mean that it will bring all positive results as nothing is perfect in this world.
ADVANTAGE OF E-Cash
E-cash doesn’t consume time unlike going to Bank or writing a bank check.There is less chance of someone stealing your wallet and using your money because cash is unmarked. For the merchants, E-Cash allows access to a global market not restricted and controlled by local currencies. Another advantage for the merchants is market swings could be magnified if consumers and businesses could send their money around the globe with the touch of a button on a PC. It is very flexible, you can store electronic cash online; It is portable.
DISADVANTAGE OF E-Cash
Money laundering and tax evasion could proliferate in stateless E-cash systems as criminals use untraceable cyber-dollar to hide assets offshore. If computer hackers or other criminals were to break into E-cash systems, they could instantaneously filch the electronic wealth of others. And the process cannot be reversed if a sender should enter an incorrect account number.
By DEDE ELORM ADJANKE
Business Development Team leader