Cashless payments (payments) that are pervading our lives, such as touch payments on smartphones and QR code payments. With the focus now firmly on alternative payment methods to cash, we often hear terms such as digital currency and electronic money

What is digital currency?

There is no actual definition for the digital currency. However, here we will explain it as “converted paper to digital data and can be used as currency”. All non-cash electronic money and virtual currencies apply to digital currencies.

Electronic money is a digital currency that digitally records the “dollar”, for example, and uses this instead of cash. The basic method is prepaid, in which cash is charge in advance, but post-pay, which is linked to a credit card, is also available.

In addition, virtual currencies such as Bitcoin, which have become a hot topic in recent years, are also a type of digital currency. Many cryptocurrencies are aimed at decentralization, and you can trade with people all over the world on the Internet without it being based on fiat (not backed by a commodity) currencies.

Furthermore, the existence of CBDC (Central Bank Digital Currency), issued by the national central bank is also drawing attention.

 

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Difference between electronic money and virtual currency

There is a big difference between electronic money and virtual currency, whether they are based on legal tender or not. Electronic money is just a substitute for legal tender. Cryptocurrencies, on the other hand, are not guaranteed in value by any particular nation. Cryptocurrencies are building a country-independent system, such as users approving transactions.

The biggest attraction of electronic money is its ease of use.

There are three main types of electronic money. Transportation electronic money generated as a ticket by railway and bus companies, distribution electronic money created by major distribution companies aiming at shopping demand at their stores, and credit card electronic money that is linked to credit cards and debit cards for payment.

With one card, you can use transportation electronic money on trains and buses nationwide. In addition, the number of stores that can be used at convenience stores and restaurants is constantly increasing. Distribution-type electronic money can be used at supermarkets, vending machines, convenience stores etc., and credit card-type electronic money can be used in a wide range of situations for convenience.

You can use electronic money by depositing cash into an electronic money terminal or by automatically debiting your registered bank account.

Advantages and disadvantages of electronic money:

Although it is easy-to-use electronic money, there are advantages and disadvantages for both users and stores. Let us list the main ones.

	Merit	Demerit
User	You can pay quickly You can accumulate points according to the amount used No need to hand over cash, and no need to carry small change	In the case of prepaid type, it is necessary to charge in advance Some have lower credit limits than credit cards
Store	No cash exchange, speeding up cash register operations The workload of cash management can be reduced Low risk of change mistakes	Since a dedicated payment terminal is required, it takes space and costs. A fee will be charged according to the payment amount

The reason why electronic money has become so popular is probably its ease of use. With a credit card, it takes time and effort to swipe the card through the terminal and sign it. However, with electronic money, you can make payments instantly by simply touching the card on the reader or holding the linked smartphone over it. Adoption in transportation is also a major factor in its widespread use, and it has become more convenient during busy commuting hours every morning.

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Why is the CBDC attracting attention around the world?

The abbreviation CBDC is known as “Central Bank Digital Currency”. It is a digital currency issued by the central bank of the nation, and it does not have physical items such as banknotes and coins, and exists only as data like electronic money and virtual currency.

Advantages and disadvantages of the CBDC:

When the currency issued by the nation is digitized, there will be advantages and disadvantages for the nation, which is the issuing entity, and for the people who use it. Let me show you highlight some points that are currently predicted:

	Merit	Demerit
National side	Reduce costs associated with the manufacture, distribution, management and disposal of banknotes and coins Since the usage history remains, you can prevent money laundering, tax evasion, remittance to illegal organizations, etc.	Requires the highest level of strength against cracking and counterfeiting, and has high technical hurdles It can lead to major changes in business customs and have unexpected disadvantages.
International side	You can use various payment services without a bank account No cash required, reducing the risk of loss or theft All income and expenses are recorded, which makes procedures such as tax payment easier.	Costly as all stores must support CBDC

Digital currencies will change the traditional values:

Digital currencies are compatible with existing IT infrastructure in that they are treated as data, and will continue to increase their presence as a payment method.

With the further spread of digital currencies that will occur in the future, the value of money thus far will surely change.