The financial system is an integrated network of institutions and technologies that facilitate the exchange of money and financial services. It typically comprises a set of key elements that contribute to the flow of money within a country's economy. The past twenty years have witnessed remarkable developments in financial mechanisms, making this sector occupy a significant place in international operations at both the public and private sector levels. This development is no longer merely a technological upgrade, but a true revolution in how individuals, companies, and governments deal with money, a revolution which will reshape the global economy in the near future.

 

The financial system primarily consists of banks, which are responsible for managing money and financial transactions; financial markets; non-bank financial institutions such as insurance companies and investment funds that offer diverse financial services; and financial intermediaries who connect investors and borrowers. Financial systems vary, including the traditional banking system, which relies on banks to regulate financial transactions; the digital financial system, which is based on the use of technology; and the Islamic financial system, which is based on the principles of Islamic law (Sharia) in financial transactions. With the global trend towards digitalization, financial services are increasingly relying on financial technology (FinTech) to facilitate international transactions and deals. The transition to a new financial system based on digital mechanisms and the widespread use of modern financial applications and platforms has already begun.

 

While this shift is crucial for strengthening state power and resilience, the transition from a traditional paper-based system to a digital one presents several challenges. The traditional system relies on circulating paper currencies like the dollar and the euro, and depends on the SWIFT network for domestic and international financial transfers, in addition to hierarchical structures and intermediaries. In contrast, the digital system relies on digital currencies, whether centrally controlled and subject to government oversight, such as stablecoins issued by private companies (e.g., USDT and USDC) or central bank digital currencies (CBDCs), or decentralized currencies not subject to government control, such as Bitcoin, Ethereum, and others.

 

The digital system is characterized by its support for flat structures, the ability to facilitate direct transactions between parties without intermediaries, and its high speed of execution. Transfers are completed within seconds via smartphones and digital platforms, compared to the long waiting times of the traditional system. Transaction costs are also reduced due to the absence of intermediaries, in addition to the advantages of security, ease of access, transparency, and other modern technologies based on innovation and leadership in financial technology tools.

 

Central bank digital currencies (CBDCs) represent a significant shift in the modern financial system, embodying the natural evolution of traditional fiat currencies like the dollar and euro, which are gradually moving towards digital versions with the digital dollar and digital euro. This is especially true given that the technology used in the new digital financial system relies on either blockchain or distributed ledger technology (DLT) as a mechanism for payments, money transfers, and exchanges, offering speeds far exceeding those of the current SWIFT system.

 

The most prominent features of the new financial system include digital banks, cryptocurrencies, artificial intelligence, financial analytics, and digital payment systems using e-wallets, QR codes, and NFC. These technologies contribute to faster and easier payments, aiming to provide specialized financial services, improve risk management, and predict future trends. However, the digital system faces challenges that require innovative solutions and collaboration between the public and private sectors to ensure its success and the realization of its intended benefits. These challenges include data protection, cybersecurity, keeping pace with technological advancements, mitigating financial crises, and addressing regulatory, compliance, and financial inclusion issues.

 

In conclusion, studies indicate that the digital financial system represents the future of money and financial transactions, offering speed of execution, reduced costs, and enhanced security, in addition to its profound impact on consumer behavior, spending patterns, and reliance on crowdfunding, digital finance, and e-investment. These advanced financial systems have the potential to transform how we manage finances and handle money, facilitating access to global financial opportunities and contributing to the reshaping of global finance and the promotion of international economic growth.

 

In Jordan, under the leadership of His Majesty King Abdullah and the guidance of HRH Crown Prince Hussein, the country is actively pursuing developments in the digital economy and its impact on the global economy, ensuring that Jordan can play an active and leading role in adopting financial technology tools and transitioning to a modern economy that keeps pace with global advancements.