Will Digital Currencies Copy Any Benefits of Cash?
With central banks around the world at various stages of considering the development of digital currencies, an interesting question is whether these potential offerings will boast any of the advantages that see cash still widely used in an increasingly digital age.
The Reserve Bank of Australia, the European Central Bank, De Nederlandsche Bank and the Bank of England are among those expressing interest, and the People’s Bank of China is forging ahead with trials that have received a mixed reception. All can agree that a digital currency must support financial stability and should innovate to offer economic and social benefits. But what will that actually mean?
The idea that cash—especially high-denomination notes—helps fund crime and terrorism has been roundly criticised by experts across the world, but there are those who would leverage such fears to ensure a digital currency will come with absolute traceability. Opponents of this prefer a move in the opposite direction, trying to emulate the anonymity and privacy afforded by physical currency in the design of a digital equivalent.
Whichever direction each potential currency takes, the Official Monetary and Financial Institutions Forum—an independent think tank for central banking, economic policy and public investment—predicts ‘outbreaks of hostilities’ as major monetary issuers compete in ‘the forthcoming digital currency wars.’ They also assert that any digital money will be designed to work alongside cash, rather than replacing it. Indeed, there are benefits to cash—such as total accessibility, no reliance on electricity or internet, resilience and lack of hackability—that simply cannot be boasted by any digital payment method.
[Digital currency] will complement rather than substitute physical cash (and indeed other forms of money), and will almost certainly be delivered as a partnership between the public and private sectors.