Digital money is similar in concept and use to its cash counterpart in that it can be a unit of account and a medium for daily transactions. But it is not cash. For example, the dollars in your online bank account are not digital money because they take on a physical form when you withdraw them from an ATM. Digital money is different from cash because it improves upon the process for monetary transactions. For example, the technological rails of digital money can make currency transfers across borders easier and faster as compared to standard money. This form of money also streamlines the process for monetary policy implementation for central banks. The use of cryptography in some forms of digital money makes transactions involving them tamper-proof and censorship-resistant, meaning they cannot be controlled by governments or private agencies.

Given these advantages, digital money has become a priority for several governments around the world. The central bank of Sweden, a country that is on its way to becoming a cashless society, has released several exploratory papers since 2017 that explore the benefits and drawbacks of introducing digital money into its economy. Meanwhile, China has already conducted pilot tests involving the DC/EP, the digital equivalent of its national currency, and is planning to release it soon. The Bahamas sand dollar is a digital iteration of the country’s national currency. It was released in October 2020.

According to a February 2021 survey conducted by the International Monetary Fund (IMF), around 111 countries from its 159 member countries are researching or planning to introduce digital money in the near future.

Advantages of Digital Money 

The current financial infrastructure is a complex system of many entities. Conducting a transaction between financial institutions takes time and money because they work in different technological systems and regulation regimes. The main advantage of digital money is that it speeds up transaction speed and cuts back on costs.