August 3, 2021

SB-Accounting

Accounting + Finance Blog

Is Decentralized Monetary System the way forward?

Is Decentralized Monetary System the way forward?
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Critics of centralized money systems believed it was flawed and pursued a more decentralized monetary system. This led to the introduction of cryptocurrencies with bitcoin leading the way. Many countries have accepted this currency in more recent times despite its high volatility, believing that it is the money of the future.

Meaning of Decentralized Money System

A decentralized or distributed monetary system is a system where money is not in the hands of the central bank, financial institutions, and other gatekeepers but the hands of the people. This makes it is a true democratized cash system that is stored on blockchain technology. And in which cryptocurrency is the medium of exchange.

Why distributed money system

Also called distributed or decentralized finance (Defi), is the new way finance will be done all over the world. Many countries are accepting this new way. In the United States, the Federal Reserves have permitted banks to do businesses with some form of cryptocurrencies referred to as stable coins. A country called El Salvador has already approved that merchants can now use Bitcoin as a medium of exchange. In Nigeria, the central bank is planning on a form of coin pegged to the Naira, also called Govcoins (Government coins or stable coins).

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Big companies have added bitcoins to their balance sheet stating that it’s a hedge against the volatility of the dollar. Further, many individuals are holding Bitcoins, Ethereum, or other alternative coins (altcoins).

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Benefits of Decentralized Monetary System

You are your bank. With a decentralized monetary system, you don’t need a bank. You keep your money in a private ledger powered by blockchain technology.

You can buy goods from anywhere. It facilitates international trade, where language, boundaries, tariffs are not barriers. A person in Ghana can easily buy an item from another person in the United States. He or she didn’t need to convert its local currency Cedis to the US Dollar.

You are immune from national monetary policy. Since a decentralized system allows individuals and not the central bank to control money on circulation, you are immune from any monetary policy issued by the country you reside in.

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It gives money to the people. Instead of money being within a few people as is true with a centralized system, a decentralized money system puts money into the people’s hands. This is actually what a cryptocurrency enthusiast stated in a tweet. Therefore, making more people possess monetary power.

Conclusion

The decentralized monetary system is the new deal. Countries or individuals not using this system may find themselves at the back of modern technology. Blockchain and cryptocurrency will be the new medium of exchange and used for international and local trades. To prove these many countries are keying into it. And El Salvador is one such country.

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