Will digital currencies and e-payments finally kill off the paper and coins we use for money? Nicole Kobie reveals why cash isn’t dying – yet
You pay for bus journeys with a wave of a card, settle a dinner bill with friends via email, and haven’t stepped foot into your bank’s local branch in years. So why do you still have change jingling around your pocket and paper money clogging up your wallet?
Is it time to kill cash? Many hope so. Leaders at Nasdaq, Visa and others have eyed up “digital dollars” traded via blockchain – the digital ledger system behind Bitcoin – as a way of speeding up payments; Sweden’s central bank is currently considering issuing a digital currency; and Barbados already has a version of its dollar based on the blockchain.
But Richard Goold, partner and global head of Tech Law at Ernst & Young, doesn’t believe we’ll ditch the coins and paper soon. “People have been predicting the death of cash for a very long time – well over 50 years,” he said. “And, credit cards, Bitcoin (and other cryptocurrencies) and fintech payment systems are giving rise to an increasingly common debate on the future of physical currencies.”
There are two ideas at the crux of the question. First, there’s the currency itself, with cash no longer backed by gold but still a physical token of value. And then there’s how we manage it, with more and more transactions making use of e-payment systems.
Digital currencies
The arguments for digital currency are many: it could cut fraud, it’s more transparent, and it’s easier to use. But as old-fashioned as they seem, those round bits of metal and rectangles of paper have their benefits. “Cash is untraceable and easy to carry around, and it isn’t only criminals and fraudsters who like these factors – the physiological link of having hard cash gives a sense of security that will be difficult to break for many,” Goold said.
Gareth Lodge, an analyst at Celent, has even bigger questions. “There are some questions around digital currencies,” he said. “Who backs it and how do you have the confidence and faith in that currency?” It may be appealing to ditch government control of money, but consider who you’re handing that power to instead. “It could leave itself open to all sorts of issues around being manipulated,” Lodge added.
Others disagree. People do like the security of physical objects, but many of us happily ditched paper books for ebook readers and paper letters for email, noted Amos Meiri, CEO of digital currency startup Colu. “It’s the same with digital currencies – initially, they’ll exist alongside standard paper currencies, but eventually they’ll take over as their advantages become apparent and society demands it,” he predicted.
“We definitely view digital currencies as the future of payments,” he said. “It may take a bit of time for people to adjust to the idea and let go of the concept of paper money, but years from now we’ll look back and muse at the fact that we ever used something as untrackable and insecure as paper to record value.”
Meiri argues that the benefits of digital currencies outweigh the downsides. “Digital currencies, especially those utilising the blockchain, provide security and visibility to the payment process, as well as a frictionless method that cuts out the middleman (and the fees paid to those institutions),” he said.
“Aside from this, an important benefit for currency issuers such as governments is that the use of all-digital currencies will greatly reduce the amount of black money on the market, on which no taxes are paid.” People who get paid under the table now and then may disagree, but Meiri added: “The advantages are just so vast that there will be no turning back.”
Modern payments
Even if we don’t ditch the dollar for Bitcoin, how we interact with money is becoming increasingly digital. Goold noted that “the use of cash will decline”, but it’s been falling for some time: physical cash makes up 45% of transactions, down from 64% in 2005, according to statistics from ATM operator Link.
Lodge said that the way we move money around is likely more important to everyday users than how it’s structurally organised and created. “I think there are all sorts of opportunities around distributed ledger and blockchain technologies, particularly where the processes are complex already, so cross-border payments in particular,” he said. Technologies such as blockchain could be used to guarantee and track payments, making it easier to both spend money and send it overseas, whether to buy a service from an Australian startup or a birthday gift for a distant niece.
Money evolves slowly, but change is happening. “We talk about debit cards being, after cash, the largest payment type globally,” Lodge said. “But it’s an overnight success that’s taken 40 years to get here.” The same follows for PayPal, with Lodge pointing out that “98% of it runs over existing payment channels anyway, and it has less than 10% market share, even now.”
“To move the needle on any of this is a long-term game,” he explained. “People’s attitudes, and even just the practicalities of it, mean it won’t happen overnight.”
There is space for rapid change in certain markets, though. “I do think that banking for the ‘unbanked’ through fintech platforms and systems will have a big impact on parts of the world over the coming decade,” explained Goold, referencing areas of the world where many people don’t yet even have bank accounts. “I also think that we will continue to see the inexorable rise of large technology companies increasingly having payment systems that challenge today’s status quo.”
While digital-only banks and smartphone-based payment systems mean we may not need to carry paper cash in our pockets for much longer, we’ll still be using the same currencies we know now in the years and decades to come – and you can take that prediction to the bank. Assuming you remember where your local branch actually is, of course.
By: Nicole Kobie
28/03/2017
Source: www.pcauthority.com.au