Digital currencies contain both threats and promises

The author is a professor at Cornell University, Senior Fellow at Brookings and author of " The future of money

The advent of digital currencies, both private and official, shakes the domestic and international financial world. This will bring many advantages, but some things will remain pretty much the same. There is also a risk that developing countries may find themselves on the wrong side of an ever increasing global financial gap.

look at international payments that are naturally complicated. They include several currencies, payment systems that work according to different protocols and institutions that are subject to different regulations. Therefore, cross -border payments are usually slow, expensive and difficult to track in real time.

New technologies created by the cryptocurrency revolution make a cheaper and practically immediate payment and processing of transactions possible. This will reduce payment -related friction in international trade. Economic migrants who send transfers home will also benefit from it.

Also on the foreign exchange markets are changes. For example, transactions between currency pairs from emerging countries are becoming increasingly easier. China and India no longer have to exchange their respective currencies in dollars to drive trade. Rather, the direct exchange of Renminbi in Rupien becomes cheaper. As a result, the dependence on "vehicle currencies", especially the dollar, will lose weight.

The view that a digital Renminbi will be available worldwide has increased the concern (or excitement) that the dollar finally receives its compensation. However, the digital Renminbi alone will not shift the balance of power between the main currencies. After all, international payment transactions are already digital. Rather, China's cross-border interbank payment system, which can communicate directly with the payment systems of other countries, will strengthen the role of the Renminbi as an international payment currency. The CIPS even has messaging functions that Swift could push to the edge, which is currently monopoly for all transactions between banks in different countries.

These changes have geopolitical effects. The global financial system dominated by the dollar and the American influence on Swift have long gave the US financial sanctions real bite. This has angered rivals such as Russia and even allies that are subjected to secondary sanctions. The effectiveness of such sanctions will erode.

Nevertheless, digitization alone will hardly improve the status of the Renminbi as a reserve currency, as an international value preservation means. China has made progress in the elimination of restrictions on cross -border capital flows and expanded the access of foreign investors to his bond markets. But the government has opposed the institutional changes - including the establishment of an independent central bank and the rule of law - which are essential to gain the trust of foreign investors.

The role of the dollar as a dominant reserve currency should remain, even if its status eroded as a payment currency. However, a more likely view is a reorganization of the relative importance of other currencies, while the dollar retains its priority. In fact, private stable coins that are covered by US dollars could find more acceptance worldwide than those that are covered by other currencies and thus strengthen the importance of the dollar.

Developing countries will benefit from new financial technologies that improve their access to global financial markets. However, the spread of channels for cross -border capital flows will tighten their susceptibility to the moods of the politics of the large central banks and the moods of international investors.

In addition, small countries and countries with central banks or currencies that lack credibility could be overrun by non -local digital currencies. The slight availability of digital versions of the most important currencies or even stable coins, which are issued by multinational companies or global banks, would be an existential threat to many national currencies. As the recent experiences of Türkiye show, even a volatile cryptocurrency of the local currency could be preferred in times of economic turbulence.

The spread of digital currencies and new technologies requires stronger cross -border coordination of regulation and supervision. International institutions such as the IMF will play a crucial role in limiting collateral damage that is added to vulnerable economies.

These technologies tie the economies and financial markets in the world closer together. But left to themselves, this beautiful new world could tighten the global economic trenches instead of bridging them.