Digital money, or digital currency, is any form of money or payment that exists only in electronic form. Digital money lacks a tangible form such as a bill, check, or coins. It is accounted for and transferred using electronic codes in computers. As technology becomes increasingly prominent, payments are becoming more digital, resulting in less use of tangible money.
Examples of Digital Money
The most common example of digital money is money issued by banking institutions that they hold electronically, either to trade or invest. Banks have liquidity requirements that mean they have to have a certain amount of physical money on-site, but there are no requirements for digital money, so it moves around much more. Most banking institutions have departments that handle sums in the millions and sometimes billions, never seeing any physical cash.
Another example of digital money is cryptocurrency. ”Crypto” is a kind of digital money that exists within the blockchain network, a network that some consider more secure than any other since there is no oversight from financial authorities. Cryptocurrency is mined, traded, or bought, and kept in digital “wallets” until the owner is ready to spend or redeem it. Common examples include Bitcoin, Ethereum, Litecoin, and Ripple.
Digital Money within Financial Services
Nowadays, a growing number of banks and other financial service companies facilitate digital money transfers and other online transactions that wire or transfer money between parties across long distances. Digital money’s assisted in the globalization of economies around the world since trade is made more easily by sending and receiving digital money.
Digital money eliminates the need to physically transfer money; furthermore, banking is made much more convenient by allowing people to perform their personal banking without even the need to visit a physical branch or carry cash.
On the other hand, banks are reducing their retail employee headcount to meet the trend of digital money. Many branches are closed since they become redundant when more people increasingly bank with digital money. It comes at a cost, however, as the banks are not able to maintain personal relationships with customers and create any sort of loyalty. In addition, banks cannot cross-sell their other products without in-person sales opportunities.