Electronic currency or digital currency is a common way through which people conduct transactions online. There are many forms of these online currencies that have existed in the past. This includes Liberty Reserve, Perfect Money and Bitcoin. These form standards of measure that is used to create a basis for transactions online. However, it can be identified that there are some online payment outlets like PayPal, Skrill and others that are based on standard currency transactions which are facilitated through these online systems.
The purpose of this paper is to critically examine the concept of Electronic currency and how it functions online. The paper will examine the impact of these currency systems on information systems and the financial environment offline in relation to governments and their standards.
What is an Electronic Currency/ Digital Currency
An electronic currency is defined as “a prepaid product which resembles the conventional cash, in which a record of the funds or value is stored on an electronic device in the consumer’s possession” . Thus, it can be said that an electronic currency is a system through which the worth of a given transaction can be evaluated and defined in order to allow various transactions to be done on it, often through the internet or an electronic medium.
Electronic currency can be viewed as a soft-copy version of conventional money because it is about the creation of a financial system in which real cash is transposed to an online or electronic system. An electronic currency is a system and monetary process through which the amount of money owned by a person or a group of people can be measured and presented to owners, who are entitled for them.
Electronic banking and electronic currency allows for transactions done online to be paid for and completed without having to go through the normal process of payment. This creates a corresponding system similar to the online environment where there is a strong and an easy or convenient way to spread and exchange money without issues and problems.
It can also be viewed as “a monetary value stored on an electronic device or stored on-distance in a central accounting record”. This implies that electronic currency is a system whereby the value or worth of money is defined and stored electronically or a centralised accounting system that accepts such records and credit people for the value or worth of their service or products. This is often ran by a party that is not a banking entity and provides an avenue for the redemption of items or services worth the amount of money that was spent.
Impact of Electronic Currency to Information Systems & Business Organisations
Electronic currency is structured in such a way that it changes and revolutionises the way business is conducted and trade is done. This is because it enables a business model to be transposed to the online setting and this implies that a commercial transaction that could only be done through a physical exchange can be done totally online without having to go to a bank to deposit cash. It involves exchanging electronic funds which can be used in lieu of real cash.
The functions of electronic currency is the same as what money does in the real world which include amongst others:
Medium of exchange;
A store of value and
A unit of measurement
As a medium of exchange, e-currency systems like Bitcoin allows people to exchange online resources quickly and fast. This means that it provides a medium that is convenient and quick and is representative of a standardised form of consideration that can be used in online commercial transactions.
Electronic currency acts as a store of value because it is a system through which money can be defined and used as a basis for a flexible transaction. Thus, in cases where there are actions and activities, this amount of money can be revived and sued as a basis for conducting that transaction. Thus, the fact that a person has purchased or acquired these electronic currencies provides a way of evaluating and helping to create a form of medium of exchange that is varied according to the circumstances and the situation at hand.
Finally, electronic currency provides an objective system through which funds can be evaluated and measured against other forms of currency. This includes the creation of a base point through which the forces of demand and supply can be invoked in order to identify the best ways of dealing with the needs of different claims. This helps in comparative analysis as well as an absolute or standardised measurement of processes and systems. This helps to create a store of value for both consumers and all other stakeholders.
Companies can sell their products and services by signing up to an e-currency system. This is because the e-currency give them something that is valuable and generally accepted by consensus to be the main tool for improving interactions. Therefore, businesses are able to get benefits that accrue to the way they carry out transactions and discuss things in terms of commerce over the Internet and other electronic mediums.
Why Governments Pay Attention to Electronic Currency
Governments have an interest in ensuring that electronic currencies are properly monitored in their jurisdiction. This is because such currencies pose unique and distinct challenges. Winter and Ono (2014) identify that electronic currency is outside the fundamental and the direct scope of the Central Banking system because they are almost always done by a private operator. Due to this, they could play a major role in distorting the activities of the central bank and make it difficult for the government to retain control over the government’s monetary and fiscal policies which could lead to major problems like inflation.
The government of every country has to protect the interest of its citizens. This includes setting up a system of regulating the country and its relevant activities. If an online system comes up that allows criminal activities and shady deals to go through, then the government will not be able to do its primary duty of protecting citizens. Hence, governments have a motivation for monitoring electronic currency and ensuring that the online trading system is regulated. This is done by censorship and other things that limit the way and manner in which electronic currencies are used in a nation.
On the other hand, electronic currency supports innovation and development of the economy and cuts down on unemployment. Through online currency, people can stay in one country and provide their services to another country without any real limitations. This ensures that online transactions are of value to the nation and helps the nation to deal with its development and growth needs. Therefore, governments have to ensure that online currencies and digital forms of payments are regulated. This way, they can do the right things for the country and the citizens and discourage all the negatives in the economy.
Electronic currencies also present unique problems with the foreign exchange position of a nation. This is because the worth of a country’s currency is based on demand and supply factors. Every digital currency has an influence on a nation’s currency, hence, there is an unconscious but potentially significant limitation on the national economy in a major way that is relevant and important.
Benefits & Limitations of Electronic Currencies
Although there are inherent challenges with electronic challenges, there are some benefits and limitations that come with such currencies. Abramowicz and Kokkinaki (2014) provide a three-tier framework in which the benefits can be evaluated and assessed. At the micro level, digital currency provides a framework for individuals to make payments to various online entities. Formerly, making a payment from one part of the globe to another cost a fortune. The use of digital currencies, create a global village where anyone at any part of the world can make significant payments to other parties in the world.
At the meso-level, digital currencies reinvent business processes and creates faster and more efficient systems of transacting business. This means that an average business can make purchases and do great things that can lead to major gains that were previously unavailable to such an entity. Hence, digital currencies play a role in promoting better methods and systems of paying bills and carrying out business activities and requirements.
For a nation and community, the benefit of using an online currency is encapsulated in the fact that it creates a more efficient society. This means the optimisation of resources in the society and helps to achieve better resource allocation.
The downside of digital currencies is that they can aid crime and terrorism. There have been a lot of laws that have been made which makes it illegal for terrorists to send money to other funds. The fact that digital currencies allow people to transfer funds without giving away their identity allows a lot of people to do things illegally. Money laundering therefore flourishes in the age of electronic currencies. For instance, Bitcoin can be used to purchase illegal things on the “Silkroad” network and help to promote criminality, including the sale of drugs, illegal weapons and child prostitution which cannot be discovered easily.
Electronic currencies are online payment outlets which allow people to purchase a stored value in order to make payments and receive payments online. This functions as a soft version of money. Electronic currencies promote better and more competitive business and encourages the government to make more efficient use of resources. They act as a store of value, a standard of measure and a medium of exchange online in a way that creates better methods of conducting business. However, they come with inherent risks like creating the opportunity for criminal activities and terrorism to flourish online in an anonymous transaction network.
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