Is a Cashless Society an Inevitable Reality?
Since the first instances of currency and monetary transactions in the world, technology and finance have developed individually and propelled each other forward to create and define new ways that transactions can be initiated and settled. From the first silver coins, to later printed bank notes, to contemporary digital e-commerce, technology has allowed the economic process to be undertaken in a way that is efficient, fair, and convenient. Today, we have under our fingertips digital resources that can be utilized to order our favorite clothes and buy concert tickets online, though cash and physical currency do still remain an abundant and vital part of most economies around the world. There is a discussion going on today in the world of finance about the place cash holds in our society, and how the relationship between physical and digital currency will look like in the future.
In “The Future of Money” by Eswar Prasad we explore current developments in the world of FinTech through Prasad’s perspective, as well as receive an overview of the brief history of digital and crypto currencies. We witness how the world of FinTech is taking its next steps into the future, where Prasad offers a fairly neutral account of these developments and the world today. Even through Prasad’s in depth analysis of these various topics, his eagerness regarding the developments of digital currencies and a prospective cashless future cannot be ignored. Throughout most of the book, I found myself agreeing with Prasad that the future of the economy will be mostly, and if not completely, cashless, though I believe that this future should be approached with more hesitancy and forethought than Prasad’s tone suggests. By rushing into a future where digital currencies immediately overcome the utility of cash, we place an entire sector of our society, those who lack technological proficiency and resources, at risk of not being able to handle a shift of such immensity. Given this reality, and a plethora of similar disadvantages to a rushed cashless economy, my stance on Prasad’s ideas presented in this book largely follows a similar pattern of thought; good idea, bad timing and execution. Regardless, this book offers finance novices like myself a healthy source of updates and information about the who’s and what’s of the finance world today, and in a manner that encourages ordinary people to apply their own ideas on the topics that were discussed.
As a novice to the world of economics, I appreciated the first couple chapters of this book which offered a catch up buffer explaining terms and vocabulary of finance which are vital for the more advanced discussions that happen soon after. Examples of concepts introduced in this section include Financial Inclusion, FinTech, Wholesale and Retail Payments, CBDC, Diversification, Bond, and Equity. This information was paired with a neutral introductory discussion of some of the (seemingly lower level) contemporary examples of digital currency and commerce. We are reminded that credit cards, paypal, and mobile payments, which are things we are all so used to, are common and already integrated instances of digital currency. These existing digital currencies act as stepping stones to discussions about more profound digital marketing possibilities for the future.
Blockchain technologies and cryptocurrencies had for a time offered a stellar example of the expectations we should have of digital currencies and finance. Prasad reveals that the two primary issues that Bitcoin intended to solve were “trust and verifiability”. The author continues to state the importance of these issues by saying:
“The timing of Bitcoin’s launch announcement, although a low-key virtual event, could hardly have been better. The Satoshi Nakamoto paper was posted online at the end of October 2008, barely six weeks after Lehman Brothers–an iconic investment banking firm whose financial operations were entangled with those of every other major US financial institution and many foreign ones as well–declared bankruptcy” (Prasad)
The events of 2008 and 2009 were tragic for the finance community and the world, the gravity of these situations being amplified by the primary incentives of emerging digital currencies; trust and non-volatility. Through all their glory, I believe that price volatility is the fatal flaw of most cryptocurrencies including Bitcoin, leaving them unable to compete with or replace national fiat currencies. With prices rising and diminishing at an unmanageable frequency, it would be impossible to trust a cryptocurrency with the responsibility of sustaining the value of a national currency, or especially handling countless transactions across the country each second. Price stability is the minimum barrier of entry that a currency would have to achieve in order to be considered eligible to be expanded to fit the role of a nationally implemented currency. It is evident that Bitcoin’s volatility is caused by a fundamental flaw in its infrastructure; “Crypto investors make bets that Bitcoin’s price will go up or go down to make profits. This causes a sudden increase or decrease of Bitcoin’s price, which leads to volatility” (The Bitcoin). Bitcoin has, more than any other eligible digital currency, room to develop and expand in order to meet the necessary requirements to become implemented on a larger scale. Bitcoin’s Proof of Work protocol, which is the existing rewards system for unpacking blocks of transactions, I feel was a topic that the author was a little too hesitant to arrive at. The Proof of Work protocol is one of the most controversial and criticized aspects of Bitcoin, given it is an inefficient means of processing transactions, and has atrocious environmental implications; and is a topic I wish was approached more directly and aggressively. The proof of work protocol, used by Bitcoin and a number of other cryptocurrencies, I believe will restrict them from being utilized on a much larger scale, and that a federally accepted digital currency would not be sustainable with this protocol. Despite this flaw, cryptocurrencies have introduced a plethora of technological advancements that future digital currencies can be influenced from, including decentralized finance, transaction anonymity, and smart contracts. These concepts will help revolutionize the world of transactions and economics in a way that is positive for both merchants and customers.
From the plethora of ideas presented in this book, Central Bank Digital Currencies were discussed with the most detail, and presented with the most hope for a digital currency to be utilized on a national scale by governments and banks. CBDC’s share certain characteristics with crypto currencies, and have definitive potential to be readily implemented by any economy that permits them. China and Sweden were introduced and presented as examples of progressive havens of digital currency and cash abandonment. Both countries have established their own Central Bank Digital Currencies, and have begun utilizing these digital currencies which are backed by the country’s national fiat currency. This means that the people of Sweden and China are able to conduct transactions and purchases utilizing the countries currency digitally. China and Sweden receive ample praise by Prasad for their courage and experimentation with this medium of currency and for taking the ultimate step of establishing a cashless society.
Prasad is very optimistic about the accessibility of CBDC’s, and the inevitability of the acceptance of these currencies by the most economically vulnerable members of our society. Prasad claims that CBDC’s “would be easier to implement and, in combination with mobile phones, which have become ubiquitous even in low income economies, can help governments make significant strides toward improving financial inclusion and reducing dependence on cash” (Prasad); though not everyone is as hopeful of this idea being implemented too soon. Udo Mueller, CEO of Paysafecard at Paysafe believes that a rapid transition to a cashless economy could potentially “worsen the hardship faced by the most vulnerable members of society, and the levels of financial exclusion would be damaging to the economy” (England). Prasad’s idea that a more digital and technologically advanced economy is only capable of providing benefits to those that are less economically involved, is perhaps a little short sighted and naive. To put it simply, “Participation in a cashless society presumes a level of financial stability and enmeshment in bureaucratic financial systems that many people simply do not possess” (Stanley). Though CBDC’s hold significant potential for being implemented in a large economy’s resources of currency, it is vital to approach this possibility with as much caution as possible.
During the pandemic, helicopter drops of money by the US government became a way of offering temporary relief to the American people as they were suffering from the economic implications of the pandemic. This process of providing relief was not as smooth as the government might have intended, leaving “Tax Payers for whom the IRS did not have direct deposit information” (Prasad) struggling and in search of their due payment. Prasad believes that “An account based CBDC would have solved many of these problems by making stimulus payments easy for the government to distribute, painless for recipients, and practically instantaneous” (Prasad). Although some pitfalls could have been avoided, it is not in any way guaranteed the existence of a CBDC or digital currency would have been utilized or accepted by the general public. “Even countries such as Sweden, where there are higher levels of equality and financial inclusion, had to introduce measures to slow down the change towards going cashless to ensure vulnerable and rural people weren’t left behind. This shows that, although the role of cash may change, not even the pandemic has been able to accelerate us towards a truly cashless society” (England). Given all of the rising issues that were present during the pandemic, I believe that a national call for a digital currency and payment system would have been extremely stressful for the American population as a whole. Though in today’s climate, I believe that it would not be a bad idea to begin introducing a program like a national CBDC before another disaster strikes. This opinion of mine is in line with many others I have about Prasad’s thoughts: good ideas, wrong timing and execution.
The discussion of implementation of Central Bank Digital Currencies expands to include the possibility of global currencies, the idea of a single global currency, and their implications for cross border transactions and economics. The discussion on this particular topic shines a light on the author’s ability to untangle and expose the complexities of any given idea. Through the author’s discussion we find his ability to offer a multi-sided commentary about a hypothetical global situation. After a healthy amount of background information was provided on the current state of the global economy and the IMF, the author begins his opinions on the topic with a tentative but sure statement: “Having one global currency accepted for transactions in all countries would have some salutary effects” (Prasad). Through hypothesizing a single global currency, we begin to uncover the potential of more efficient international banking and investing. By understanding how currencies like the US dollar are able to sway and manipulate the value of currencies in emerging economies, the prospect of a single currency does begin to appear as a potential solution to these inequalities. Prasad allows his stance on this complex issue to develop by stating: “A single global currency would, however, impose considerable costs and constraints on national policymakers”. The benefits of a single global currency are most effective when they will solve or work to reduce the control of major international currencies on those of smaller and emerging economies. Concurrently, if we are able to address the problems that are incentivizing change and developments to the global economic system, then it might be worth considering fixing the fundamental issues that create these inequalities in the first place. CBDC’s are being presented as a solution to a problem that requires a much more complex, and fore thought approach. With this, and many other instances, it is vital to consider if digital currencies truly are the solution that will fix the problem at hand, or if we are in actuality grabbing at low hanging fruit.
Digital currencies contain significant and real potential to enhance the future economies of countries around the world if they are implemented with certainty and caution. With this potential in mind, it is vital to remain cognizant of our current circumstances, and realize how we can transition to this ideal future in a way that is inclusive and considerate of all members of our society. We have seen examples of countries around the world that have begun to implement digital currencies into their national economies, and though we can watch how these systems unfold, we must also understand the differences in their economies that would allow for such swift transitions. The future awaits further economic progress and technological innovation — yet these developments will be most effective when they are able to benefit all members of society.
WORKS CITED
“The Bitcoin Volatility Index.” Buy Bitcoin Worldwide, https://buybitcoinworldwide.com/volatility-index/#:~:text=Is%20Bitcoin%20volatile%3F,in%20a%20period%20of%20time.
England, Joanna. “Fintech Future: How Soon Will the World Be Cashless?” FinTech Magazine, 19 July 2022, https://fintechmagazine.com/digital-payments/fintech-future-how-soon-will-the-world-be-cashless.
Prasad, Eswar S. The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance. The Belknap Press of Harvard University Press, 2022.
Stanley, Jay. “Say No to the ‘Cashless Future’ — and to Cashless Stores: News & Commentary.” American Civil Liberties Union, 6 Sept. 2022, https://www.aclu.org/news/privacy-technology/say-no-cashless-future-and-cashless-stores.
