The uncertain transformation of digital currency | UCNA News

Opinions differ on the impact cryptocurrency will have on the world. But most experts agree that some sort of transformation is underway in money and finance.

Eswar Prasad, Senior Professor of Trade Policy at Cornell University, author of “The Future of Money: How the Digital Revolution is Transforming Money and Finance,” shared his thoughts on the impact of digital currency on finance, central banking and society on Thursday at the 2022 Co-op THINK Conference in Chicago.

Although financial innovation is not new, Prasad believes cryptocurrency and blockchain will challenge the way financial institutions do business. Financial institutions are adapting, as is the offering of cryptocurrency advisory services, and Prasad suggests that companies that stick their heads in the sand won’t survive much longer.

Therefore, credit unions should continue to focus on service while showing members that they can adapt.

“A critical part of credit unions that isn’t in decentralized finance is that you already have the trust of your members,” says Prasad. “There is already an implicit trust built into the relationship.”

Cryptocurrencies, which began when an anonymous author published a white paper on bitcoin online in 2008, are a form of decentralized finance that serves as a medium of exchange allowing people to conduct secure transactions without intermediaries. .

“That’s the joy and the problem of the decentralized world: there’s no one to turn to,” says Prasad, referring to the problem of people losing their password and permanently locking themselves out of their digital wallet. “Similarly, if you make a mistake on a transaction, you can’t call with an angry tone because there’s no one to call.”

Credit unions can minimize risk by holding digital wallets for their members. Digital currencies provide consumers with easy access to the financial system, which Prasad says is key to success in a modern economy.

But the most popular cryptocurrency, bitcoin, is not performing as expected, according to Prasad.

“Bitcoin’s problem is that it has an unstable value,” he says. “Bitcoin has become something it was never intended to be – a pure speculative asset.”

He expects bitcoin’s true legacy to be blockchain. The technology is secure and can be used to make efficient interbank payments and enable flash loans. These loans allow people to borrow without posting collateral and repay that money instantly.

Although technology may change the future, Prasad does not expect physical currency to completely give way to digital currency.

“It’s not going to fundamentally threaten the US dollar,” Prasad said, noting that the dollar has stored value, an institutional framework and an independent central bank. “But the ability to have access to different currencies is potentially difficult for currencies in smaller countries. And the role of the US dollar as a payment currency will diminish because technology makes it easier to offer more options. Digital is a way to keep financial institutions in the game and provide opportunities for new entrants.

Prasad adds that technological advancements can lead society astray. Therefore, although cryptocurrency has obvious advantages, society must consider economic, technological and societal issues.

“Money could end up becoming an instrument not only of economic policy but also of social policy. If we build the technology on top of existing cracks in society, the problems could get worse,” says Prasad, who titled the final chapter of his book, “A Glorious Future Awaits, Perhaps.”

“Left to its own devices, this could all lead to a much darker world,” he says. “The role that governments play in all of this is going to be crucial. We can create safeguards that keep things from going off the rails. »

Sylvia B. Polson