The release of Bitcoin in 2008 triggered the emergence of digital currencies to disrupt and challenge the efficacy of traditional financial systems. Digital fiat currency (DFC) has the ability to deliver peer-to-peer payments that are faster, cheaper, more secure, more convenient and more efficient than traditional legacy-based banking systems.
DFCs are by default, supported by a centralised authority. This enables DFCs to overcome challenges typically associated with private digital currencies offers, such as high price volatility and lack of universal acceptance.
If implemented correctly, DFCs could contribute to improved national payment systems, convenience and broad digitisation. If hastily applied, there are risks of consumer exposure to cyber-attack, financial instability and potential national payment system failure if proper infrastructure and regulatory frameworks are not implemented.
This new concept note in partnership with FSD Africa, seeks to understand the benefits and potential risks of digital fiat currencies for financial-sector development and inclusion.
This note will be discussed at the International Telecommunication Union (ITU) Focus Group on Digital Currency including Digital Fiat Currency in New York, USA.