The Bank of Ghana announced that it was launching a new digital currency called the E-cedi. The digital coin will operate in a sandbox interim and is hinged on advancing financial inclusion and facilitating trade towards a cash-lite economy. This currency has the potential to change how society thinks about money.
What is digital currency? This is a currency that exists exclusively in electronic form. It is not to be confused with the electronic currency currently being used in most banks in Ghana and ATMs. With an electronic currency, the money becomes physical once you withdraw it. However, with a digital currency, money never takes physical form.
The governor of the Bank of Ghana disclosed that the digital currency is in its advanced stages. However, before the money goes into circulation, it has to go through three phases: design, implementation, and piloting.
Central Bank Digital Currency
What is a Central Bank Digital Currency? CBDC is the digital form of a bank’s fiat currency. In this system, the bank issues electronic tokens whose value is backed by the government’s full faith and credit. This new development will replace minting coins or paper notes. The central government will determine the supply of this digital currency.
In addition to that, Ghanaians will be able to use the Ghana digital currency for international transactions. During the announcement and the piloting of the new currency, the bank’s governor announced that there would be coordination between the Bank of Ghana and other central banks in the world.
Cryptocurrency vs digital currency
Is CBDC a type of cryptocurrency? No, a digital currency and a cryptocurrency are two different things. Digital currency refers to the electronic form of fiat money issued by governments, whereas cryptocurrency is a store of value secured by encryption.
The digital coin is used for contactless transactions between parties where you can electronically transfer an amount from your bank account to another. Crypto coins like Bitcoins, Ether, and Dogecoin are privately owned and are created using advanced blockchain technology.
Is the currency volatile?
When a currency is volatile, it means that its value is frequently fluctuating. To know the volatility of a currency, calculate the dispersion of exchange rate changes around the mean. The larger the number, the higher the volatility.
When one hears about a digital currency, the first question usually asked is whether it is volatile. The E-cedi is expected to be less volatile than cryptocurrencies since the state backs it. If there are any market fluctuations, the Central Bank will step in and find a lasting solution to the instability in the market.
Cryptocurrencies are usually volatile due to many factors. One of them is a lack of proper Central Bank regulation. They also experience high inflations, high profile losses, and uncertainties of future values. All of these factors make them too unstable to play the function of money.
The importance of E-cedi?
E-cedi will ensure that more people are included in the Ghanaian economy. These digital money solutions will ensure that the government includes the unbanked population in the digital economy.
The higher financial inclusion will boost the Gross Domestic Program of the country which can be used to tell the poorest countries. It will also lower transaction costs associated with transfers and transactions.
Unlike the normal money being used, E-cedi is available every hour of every day, meaning you can complete payment faster. It will also be available for use by everyone, not just those with smartphones. The Bank of International Settlement has also stated that it can improve liquidity by allowing faster transaction speeds.
Digital currency is the way forward for the world’s economy when properly regulated. Ghana is one of the first countries on the continent to come up with its digital currency, making it a trendsetter. It is predicted that other countries will follow suit.
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