Generally speaking, digital money is a form of money-like asset and is typically stored or exchanged via the Internet. There are many types of digital currency, such as central bank digital currency, virtual currency, and cryptocurrency.
Reduces Time Lag and Operating Costs
Increasingly, several governments around the world are considering the introduction of digital money into their economies. This could bring many advantages, including reduced costs of currency transfers, faster monetary transactions, and reduced accounting and record-keeping costs. However, it also has some downsides. Digital money has its own set of costs, which must be managed properly. And it may also circumvent existing capital flow management measures. In addition, there are a number of policy framework and governance challenges that need to be addressed before digital money is fully implemented.
For example, the current financial infrastructure is very complex. It involves many entities and takes time to make transactions between them. This also creates a risk that currency transfers between countries could be disrupted, especially if currency convertibility is limited. Consequently, countries will need to ramp up their regulatory capacity. And they also need to ensure that these new forms of digital money are not used as a means to finance terrorism or money laundering.
Can Be Hacked and Can Erode Privacy
Using digital currency is no doubt a cool new way to make purchases and pay bills, but it does come with its share of pros and cons. Specifically, a digital wallet is a great way to store and send cash, but it is also a tempting target for hackers and thieves alike. The best way to secure your digital wallet is to be smart about your digital banking and prepaid card transactions. Some companies have a program to monitor and report suspicious transactions to the authorities, but that may not be enough. The best course of action is to ensure that you have a prepaid card for your most important expenses.
Can Be Used by Criminals to Evade Taxes or Launder Money
Typically, money laundering is a key component of organized crime, although it can also be used by private individuals, businesses, and corrupt officials. It involves converting an illicit source of funds into a legitimate one. This is typically achieved through the use of disguising financial transactions. This allows unaccounted cash to be received, and also helps to evade taxes. However, the IRS has used money laundering statutes to help curb tax evasion.
The IRS has recently introduced new reporting requirements, which will make it harder for criminals to hide money. The theory behind the global concern over money laundering is that failing to report income on a timely basis erodes national economies. As a result, prosecutors have stepped up foreign financial institution cooperation, and stiff criminal penalties have led to heightened awareness of these institutions.
Money laundering is also used by criminal organizations to invest in legal businesses. They can then use the money to pay under the table salaries or bribes. It can also be used to finance terrorism.