There are many potential effects of digital currency. Its introduction is expected to boost gross capital flows and reduce transaction costs. It could also facilitate new financial products such as hedge funds and risk-sharing. However, it could also increase risk and increase the danger of financial contagion and balance of payment problems. There are many concerns about the impact of digital money.
One of the main issues surrounding digital currencies currently is that they are not regulated and as such can threaten the stability of the financial system. The impact on a bank’s accounting may be profound, but there are also risks associated with the development of digital currencies. These currencies rely on blockchain technology which does make it a highly secure platform for transactions. Whilst it makes life easier for the people who use it, it is causing some issues for traditional financial and accounting practices.
These two industries are obviously very closely linked so what affects the financial industry will have a profound knock on effect on accounting professionals.
Blockchain could make accounting a lot easier in that it can reduce maintenance costs. It provides a much clearer and more quickly available picture of assets and possession of resources, meaning more time can be spent on planning and evaluations. For advice from Bath Accountants today, contact Chippendale & Clark, a top firm of Bath Accountants
A digital currency is more convenient than a physical currency. For example, it enables people to interact directly within a network. If the two parties are located within the same network, the customer can pay the shopkeeper directly using the digital currency. Unlike traditional currencies, digital currencies cut out the middlemen, reducing the costs of the transaction. In addition, these new currencies do not require physical wallets to store the money. Online wallets are required to store the digital currency.
Digital currency could have huge implications for the banking system. For example, it can foster greater interoperability and integration of payment systems. It could be used to foster cross-border payments, a major benefit for many lower-income countries. Its introduction will also have an impact on the role of central banks. This digital money will require quite a mental shift in the preconceived ideas of how financial institutions currency operate.
Besides its convenience, digital currency can also offer higher security than traditional currencies. While traditional currency has its advantages, digital money does not have any physical attributes. Its use is restricted to specific online communities and computers. If a user has an account in a different country, they will be able to use it from any location, for example.
Whilst a lot is still unknown about digital currencies, it is clear that they will form a large part of the future of financial transactions and as such, accountants should be proactive in forecasting and planning cryptocurrency trends. This might result in seeing accountants spending more time as advisors for potential investors and clients.