Why crypto-money cannot replace physical money

calendar iconMar 15, 2018


Some regard Bitcoin as the holy grail of payments, a long-awaited answer for harmonising payments into a utopia of transparency. A slightly more tentative perspective suggests that Bitcoin is more akin to the Palm Pilot that 'paved the way for today's smartphone'. Others stand by cash and argue that as great as blockchain may be, there is still no other payment form that rivals how fast, convenient and reliable cash can be.

Yet, it is undeniable that the rapid advancements in payments technology has ruffled feathers. That is why it is important to resist the tech-hype driving the herd mentality that believes that 'cash will not be king forever'. Just because the use of digital payments is growing, it does not mean cash use is declining. In fact, a recent study from the Bank of International Settlements revealed just the opposite. Because even though the sheer number of non-cash options are increasing, the use of the most durable payment option (cash) is also growing.

With central banks entertaining the possibility of setting up their own cryptocurrency, or rather Central Bank Digital Currencies (CBDC), it is a sure bet that the public is about to be overwhelmed with all sort of complicated e-currencies, e-wallets, cryptocurrencies and more. As they navigate the untamable world of digital finance, they will still want to have their cash by their side.

The leaders of France, Germany and Japan have voiced their intention to address the issues surrounding blockchain-based cryptocurrencies at this year's G20 summit, taking place next week. It is understood that the policymakers are concerned with the illicit ways in which consumers and investors use digital currency.

Excerpt from Financial Times article: Bitcoin not the answer to a cashless society

...do we need a CBDC? Existing payment arrangements – based on commercial money – are already digitally provided and increasingly convenient, instantaneous and available 24/7. Nevertheless, if cash disappeared, there would be a stronger case to consider a CBDC. Otherwise, the public would be wholly dependent on commercial money, and trust in the currency, a key public good, would be reliant on the creditworthiness of commercial entities and on specific payment technologies. However, despite the growing popularity of electronic payments, the cashless society is not here yet. Demand for bank notes is still growing in many countries.

If it were to come, a CBDC would have to be as convenient for consumers and businesses to use as the commercial equivalent. It would have to be hacker-proof. If we want to stop illegal use, it should not grant the same anonymity of cash to users. But giving central banks unprecedented amounts of information about individuals is equally controversial. There is no one-size-fits-all solution.

"Almost nobody prices goods in bitcoin, few use them for payments, and, as a store of value, they are no better than gambling in a casino."
"Benoît Cœuré and Jacqueline Loh'Bitcoin not the answer to cashless society'Financial Times

In sum, thinking carefully about the future of money is timely in view of new technologies and increasing use of electronic payments. Still, it is not yet clear whether CBDCs for consumers and businesses are necessary or desirable. The jury is still out, and the answer will clearly differ country by country.

Read full Financial Times article here


Cœuré, Benoît and Jacqueline Loh. 'Bitcoin not the answer to a cashless society.' Financial Times. Electronically published March 12, 2018. Accessed March 14, 2018.

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Last Updated: May 12, 2018