The Race to Develop Digital Currency

This activity is important because, as a manager, you will use money to trade for a good or service. While paper money and coins are the most visible type of currency, they are insignificant when compared to the value of money kept in savings, checking, and other monetary accounts. As global business and technology continue to expand, we must be aware of the issues and benefits of digital currencies.

Read the case and answer the questions that follow.

Several countries have started exploring and using digital currency programs, including the Bahamas, Australia, Malaysia, Singapore, South Africa, and, most noticeably, China. China has opened up its digital currency to foreigners and plans to test this achievement when it hosts the Winter Olympics in Beijing. The United States, by contrast, is just finishing up a multiyear Federal Reserve paper that will begin a major public consultation on central bank digital currencies.

As the world moves away from physical spaces to wireless solutions, the way we pay for things is changing too. Some critics of digital currency, including the American Banking Association (ABA), argue that the benefits are difficult to measure and could create negative consequences for monetary policy. However, others believe that larger banks are resistant to the digital currency because there are fewer profits to make from transactions.

Many countries have long tried to reduce their dependence on the American dollar, which is the primary funding currency for the world. And while the dollar isn't going away anytime soon, China has put itself in a position to lead the discussion on policies and regulations in the global landscape.

1. _____________, like the dollar and digital currency, is/are the common denominator that allows people to compare different goods and services that can be consumed on a particular income level.

A. Credit cards

B. Money

C. Certificates of deposits

D. Rewards

E. Debit cards

2. Which characteristic of money are critics most skeptical of with digital currencies?

A. Divisibility

B. Stability

C. Suitability

D. Durability

E. Portability

3. Which of these tools would the Federal Reserve use to discourage people from making major purchases, thus decreasing economic activity?

A. Buy government securities

B. None of the answer are correct

C. Lower the discount rate

D. Restrict credit controls

E. Relax credit controls

4. Which of the four major responsibilities of the Federal Reserve Board would introducing a digital currency fall under?

A. Supervise the deferral deposit insurance programs of banks

B. Manage regional and national checking account procedures

C. Control the supply of money

D. None of the answers are correct

E. Regulate banks and other financial institutions

5. What is the general lag before the effects of the Federal Reserve Boards changes impact economic activity?

A. Almost immediately

B. 2-3 months

C. 3-5 years

D. 4-5 months

E. 6-18 months