A RESARCH PROPOSAL SUMITTED TO ACCOUNTING AND FINANCE

DEPARTMENT

ANALYSIS OF THE POTENTIAL OF DIGITAL CURRENCY TO ADDRESS THE

ISSUES OF THE FIAT MONETARY SYSTEM

Group name id

Nebyu Bedru 1379/21

Mintesnot Girma 2097/19

Mikiyas Berhe 1838/19

Berket Simegnew 0110/20

Yordanos 0611/19

NOVEMBER, 2022

ADIS ABABA, ETHIOPIA

Abstract
The current monetary system, based on fiat currency, is facing a number of challenges such as monetary
policy, inflation, debt, and financial stability. In recent years, digital currencies have emerged as a
potential alternative to the traditional fiat monetary system. This research proposal aims to analyze the
potential of digital currency to address the issues of the fiat monetary system. The study will focus on
the comparison between digital and fiat currency, and the technical, economic and regulatory aspects of
digital currencies. The research will also explore the impact of digital currency on the economy and
society, and the challenges and opportunities it presents. The research will be based on a combination
of literature review, surveys, interviews, and case studies. The findings of the research will contribute to
the understanding of the potential of digital currency as a solution to the problems of the fiat monetary
system, and its feasibility and impact.

Introduction
The history of money started back around 6000 BC and the monetary policy they use at that time was
barter which is a system of exchange in which participants in a transaction directly exchange goods or
services for other goods or services without using a medium of exchange. For instance if a person need a
cow from the other person then the person should offer goods or service to exchange with cow. since
this system wasn’t sufficient people started to use gold as a medium of exchange around 700 BC this is
because gold is scarce , hard to harvest and durable but gold can debased ,fluctuates ,hard to transport
and limited supply for tthis reason gold was replaced by paper money around 619-907 and was first
created by Chinese and was adaptod by Europeans and this paper money was like a contract with a bank
with the agreement of I owe you some amount of money the banks was owned by individuals and on
1694 all the banks get centralized by government. after world war in 1944 Britton woods agreement was
made by Europeans because of the great depression which states every countries iou money was
backed by US iou money and the US iou money is backed by gold and this led to the. Unfortunately the
US started printing more money so there money lose value and every one started redming there gold at
this point the president of the US broke the agreement of Britton wood agreement and the fiat money
was born. Digital currency, also known as digital money, electronic money, or virtual currency, is a form
of currency that exists only in digital form.

Background of the study

Digital currency, also known as digital money, electronic money, or virtual currency, is a form of
currency that exists only in digital form. It is not a physical currency like coins or paper bills, but rather is
stored and exchanged electronically.

Digital currencies use encryption techniques to regulate the generation of units of currency and to verify
the transfer of funds. They operate independently of a central bank or government, and they can be
exchanged directly between individuals without the need for a financial intermediary. Examples of
digital currencies include Bitcoin, Ethereum, Litecoin, and Ripple. These currencies use blockchain
technology, which is a decentralized and distributed digital ledger that records all transactions.

It's important to note that not all digital currencies are the same, some digital currencies are
decentralized and others are centralized, some digital currencies are stable coins and others are not.

Fiat currency is a type of currency that is issued and backed by a government or central authority. The
term "fiat" comes from the Latin word for "let it be done", indicating that the currency's value is derived
from the government's decree or order.

Fiat currency is not backed by any physical commodity such as gold or silver, but instead relies on the
trust and confidence of the people who use it. It is considered legal tender, meaning that it can be used
to pay debts and taxes.

Examples of fiat currency include the US dollar, the Euro, the Japanese yen, and many others. These
currencies are issued and controlled by central banks, which are responsible for managing the money
supply and controlling inflation.

Statement of the problem

The current monetary system is facing a number of challenges such as monetary policy, inflation, debt,
financial stability and during transaction between cross border countries. These challenges have led to
the emergence of digital currencies as a potential alternative to the traditional fiat monetary system. In
this research we will try to see if the digital currency can fix this problem.

1.1. Objective of the study

1.4.1.General Objective

The primary objective of this research is to compare and construct the current monetary system(fiat
money) with digital currency and also we will try to see is the digital currency the futher of money
because we have seen the monetary system change throughout the history many times.

1.4.2. Specific Objectives

1. To compare and contrast the technical, economic and regulatory aspects of digital currencies
with those of fiat currency.
 2. To investigate the potential of digital currency to address the issues of the fiat monetary system,
such as monetary policy, inflation, debt, and financial stability.
3. To examine the impact of digital currency on the economy and society, including its potential to
improve financial inclusion and reduce transaction costs.
4. To identify the challenges and opportunities presented by digital currency, and to propose
solutions to address these challenges.
5. To conduct a case study analysis of the practical applications of digital currency and its potential
to address the issues of the fiat monetary system.
6. To gather data and opinions through surveys and interviews with experts and users of digital
currency to understand the perceptions and use of digital currency

1.2. Research questions

 How do the technical, economic and regulatory aspects of digital currencies compare to those of
fiat currency,
 What is the pottential impact of digital currency on the economy and society, and what are the
challenges and opportunities that it offers
 How can digital currency be applied in practice to address the issues of the fiat monetary
system, and what are the potential benefits and limitations of these applications?
 How do experts and users of digital currency perceive and use digital currency, and what are
their opinions on its potential to address the issues of the fiat monetary system?
Significance of the study
This research is important because it give insights for researchers who want to investigate about
the digital currency since there is not much research done on digital currency the research will
help policy makers and investors.
1.7. Scope of the study

Because the digital currency is new phenomena there is not much studies made on its area and that’s
one of the challenge that face the research. Because most of the exchange owners are out of the
country it’s hard to meet them in person to interview them.

2. LITERATURE REVIEW
On this section we will review other research and studies made relevant to the research.
Definition
History of money
The history of money is a long and complex one, dating back thousands of years. The earliest
forms of money were probably commodity money, such as cattle, shells, or precious metals, that
were used as a medium of exchange. These early forms of money had value because they were
scarce and useful in themselves, rather than because they were backed by a government or other
authority.
As societies became more complex, they began to develop more sophisticated forms of money.
One of the first forms of money was metal coins, which were minted in ancient civilizations such
as Greece and Rome. These coins were made of gold, silver, or other precious metals, and they
had a specific value based on the weight and purity of the metal they were made from.
Paper money first appeared in China during the Tang Dynasty (618-907 AD). At first, paper money
was just a type of government-issued IOU, that could be exchanged for gold or silver at a later
date. It was used as an alternative to metal coins, which were heavy and difficult to transport.
In the Middle Ages, goldsmiths began to issue paper receipts for gold and silver deposited with
them for safekeeping. These receipts were widely accepted as a form of money, and they
eventually evolved into the banknotes we know today.
As economies became more industrialized, and trade and commerce increased, the need for a
more convenient form of money grew. In the 19th century, governments around the world began
to adopt the gold standard, which pegged the value of their currency to the value of gold. This
helped to stabilize currencies and promote international trade.
In the 20th century, most countries abandoned the gold standard and moved to a fiat monetary
system, where the value of money is based on the trust and confidence of the people who use it,
rather than on a tangible asset such as gold. Today, most money exists in digital form, and it is
exchanged through electronic transactions rather than through physical cash.
How did the digital currency emerged
The history of digital currency dates back to the early days of the internet. In the late 1990s and
early 2000s, various forms of digital currency were developed, including e-gold and Liberty
Reserve. These early digital currencies were decentralized and allowed for anonymous
transactions, but they also faced legal and regulatory challenges.
In 2008, the first decentralized digital currency, Bitcoin, was created by an individual or group of
individuals using the pseudonym Satoshi Nakamoto. Bitcoin uses blockchain technology to create
a decentralized, peer-to-peer network that allows for secure and transparent transactions. It is
not controlled by any central authority and is not backed by any physical commodity.
Bitcoin quickly gained popularity and has been followed by many other digital currencies,
including Ethereum, Litecoin, and Ripple. These digital currencies, also known as
cryptocurrencies, have become increasingly popular in recent years and have been adopted by a
growing number of businesses and individuals.
While digital currency has been met with some skepticism, it has also been praised for its
potential to revolutionize the financial industry by providing a more efficient, transparent, and
secure way of conducting transactions. The technology has also been used to create new
financial instruments such as smart contracts and decentralized applications (dapps) on
blockchain networks.
Despite the growing popularity of digital currency, there are still many challenges to be
overcome. Legal and regulatory issues, security concerns, and volatility in value are some of the
main obstacles that need to be addressed before digital currency can become a mainstream form
of payment.

Nature of fiat currency

Fiat currency is a legal tender that is issued and backed by a government or central authority,
such as a central bank. The value of fiat currency is not backed by a physical commodity, such as
gold or silver, but rather by the authority that issues it. This means that the value of fiat currency
is based on trust in the government or central authority that issues it.
Fiat currency is typically issued in the form of paper money and coins, but it can also be in digital
form. It is typically used for transactions within a country and is regulated by the government or
central bank.
Fiat currency can be divided into different denominations, such as dollars, euros, or yen, and can
be exchanged for other currencies. The value of fiat currency can fluctuate in relation to other
currencies, depending on a variety of factors such as economic conditions, monetary policy, and
international trade.
Fiat currency is subject to inflation, which is a general increase in the price of goods and services
over time. This can erode the purchasing power of money and make it difficult for people to plan
for the future. Central banks use monetary policy to control inflation and stabilize the economy,
but these policies can have unintended consequences, such as recessions and unemployment.
 In summary, fiat currency is a type of currency that is issued by a government or central
authority, not backed by a physical commodity, and its value is based on trust in the issuer. It is
subject to inflation and monetary policy, it can be divided into different denominations and can
be exchanged for other currencies.
Nature of Digital currency
Digital currency is a form of currency that is stored and exchanged electronically, typically using
blockchain technology. It is decentralized, meaning it is not controlled by any government or
central authority, and is not backed by any physical commodity. Instead, the value of digital
currency is determined by market supply and demand.
One of the most well-known and widely used digital currencies is Bitcoin, which was created in
2008. Other examples of digital currencies include Ethereum, Litecoin, and Ripple. These digital
currencies, also known as crypto currencies, can be used for a variety of transactions, such as
buying goods and services, making investments, and sending money to other individuals.
Unlike fiat currency, digital currency is not subject to government regulation and is not controlled
by any central bank. Transactions made using digital currency are typically recorded on a public
ledger, called a block chain, which allows for transparency and security. Digital currencies can be
traded on various online platforms, and their value can fluctuate rapidly, making it a volatile form
of investment.
Digital currencies can be stored in digital wallets, which are software programs that can be
installed on a computer or mobile device. These wallets can be used to store, send, and receive
digital currencies.
Limitation of fiat currency
1. Inflation: The fiat monetary system is subject to inflation, which is a general increase in the price
of goods and services over time. This can erode the purchasing power of money and make it
difficult for people to plan for the future.
2. Monetary policy: Central banks use monetary policy to control inflation and stabilize the
economy. However, these policies can have unintended consequences, such as recessions and
unemployment.
3. Debt: Governments and individuals often accumulate large amounts of debt, which can lead to
financial instability and economic crises.
4. Financial crisis: The fiat monetary system is vulnerable to financial crises, such as bank runs and
currency collapses, which can lead to economic downturns and social unrest.
5. Lack of transparency: The fiat monetary system is not always transparent and can be subject to
manipulation by central banks and governments.
6. Limited accessibility: Not everyone has equal access to the fiat monetary system, particularly in
developing countries where financial inclusion is limited.
7. High transaction costs: Traditional financial systems can be costly to use, with high transaction
fees and long processing times, particularly for cross-border transactions.
8. Lack of privacy: Transactions in the fiat monetary system can be tracked and monitored, which
can compromise users' privacy.
9. Dependence on the government: The value of fiat currency is based on trust in the government
or central authority that issues it, if this trust is lost, the currency's value can drop dramatically.
10. Dependence on the economy: The value of fiat currency is closely tied to the health of the
economy, if the economy is not doing well, the currency's value can drop.

Limitation of digital currency

1. Volatility: The value of digital currencies can be highly volatile, meaning that it can fluctuate
rapidly and unpredictably. This makes them a risky form of investment and can make it difficult
to use them as a means of exchange.

2. Regulation: Digital currencies operate outside of traditional financial systems and are not
subject to government regulation. This can make them vulnerable to fraud, money laundering,
and other illegal activities.

3. Security: Digital currencies are stored in digital wallets, which can be vulnerable to hacking and
other forms of cybercrime. This can lead to the loss of digital currency and can make it difficult
for users to secure their assets.

4. Adoption: Digital currencies are still not widely accepted as a form of payment, and there are
limited options for using them to purchase goods and services. This can make it difficult for
individuals and businesses to use digital currencies in their daily transactions.

5. Complexity: Digital currencies and the underlying technology, blockchain, can be complex to
understand and use. This can be a barrier for many individuals and businesses looking to use
digital currencies.
 6. Lack of Privacy: Transactions in digital currencies can be tracked and monitored, which can
compromise users' privacy.

7. Scalability: Digital currencies are still in the early stages of development, and the technology
behind them is not yet able to handle large numbers of transactions at the same time, leading to
slow transaction speed and high fees.

8. Lack of legal protection: Digital currencies are not backed by any government or central
authority, so if something goes wrong, you might have little or no legal recourse.

3 Research Methodology and Design

3..1Area of the Study

The study will be on the analysis of the potential of digital currency to address the issues of the fiat
monetary system and it will covers areas like Monetary Economics, Financial Technology, Digital
Currency Regulation and Economic Impact.

3.1 The Research Design

In this research we will be using descriptive design by collect data through methods such as surveys,
interviews, observations, or secondary data analysis we will also use mixed research design and
correlation design to establish a relationship between two variables fait and digital currency.

3.3Source of data collection

In this research the we will be using quantitative and qualitative data but focus more on quantitative
data. We will gather the data through primary data and secondary data. Surveys’, Secondary data such
as reports, articles, and studies on digital currency, blockchain technology, and the fiat monetary system
can be collected and analyzed. Online data: Online data such as social media posts, news articles, and
forums

3.4 Method of data collection

The data will be collected from secondary data and primary data. The primary data will contain surveys’.
. Surveys’ will be sent through emails to a sample of individuals who have experience with digital
currencies, such as cryptocurrency investors, digital currency traders, and merchants who accept digital
currencies as payment. In the digital currency also to sample of economist who have more knowledge
on the current monetary system.

The secondary data will contain

 Reports, articles, and studies on digital currency, block chain technology, and the fiat monetary
system can be collected and analyzed. This data can provide valuable information on the current
state of digital currency and its potential to address the issues of the fiat monetary system.
 Online data: Online data such as social media posts, news articles, and forums can be analyzed
to understand the public's perception of digital currency and its potential to address the issues
of the fiat monetary system.

3.5 Sample size

Since sample size should be sufficient to provide accurate and reliable results, and to ensure that the
sample is representative of the population being studied. Sample size of 100 people will be used for the
survey to increase the accuracy.

3.6 Sampling technique

For the sampling technique we will use simple random sampling for the first 25 surveys’ and Stratified
Random Sampling for the next 50 and Convenience Sampling and jugmental sampling for the rest 25
surveys.

3.7 Data Processing and Analyzing

Quantitative data such as survey responses can be analyzed using statistical techniques such as
frequency analysis, cross-tabulation, chi-square test, and correlation analysis to identify patterns
and trends in the data.
Data visualization techniques such as tables, graphs, and charts can be used to present the data
in a clear and easy-to-understand format.
Data cleaning and preparation which is checking and cleaning the data, dealing with missing data,
and transforming the data into a format suitable for analysis.
 The final part of the analysis is making sense of the data and drawing conclusions based on the
findings.

3.8. Method of presenting the outcome

A PowerPoint presentation is a visual aid that can be used to present the research findings to a wide
audience, such as a conference or a class. It can include slides with charts, graphs, and tables to present
the data and can include a summary of the research question, objectives, methodology, results, and
conclusions.

Reference

https://www.youtube.com/watch?v=pPgd7Hj3ABQ channel name ted. Tile the future of

money
https://en.wikipedia.org

https://www.youtube.com/watch?
v=euE9fZcc55w&list=PLinliDgP9EbScxfH5wxoX8I_HNRSElqZ_&index=3 channel name Professor
Barth. title what is money

https://www.sciencedirect.com

https://www.tandfonline.com

https://corporatefinanceinstitute.com
https://www.investopedia.com

https://study.com