Digital Money

Our cryptocurrency piece certainly stirred some emotions. Here’s a twist in the same vein that may allay certain concerns but, no doubt, will heighten others. Bank robberies and other hauls of cash have long been favoured by Hollywood film makers. Suitcases of dollar bills regularly featured in ransom demands. However, more modern-day versions of grand larceny don’t involve cash. They’re depicted by numbers disappearing from bank balances on computer screens.

Even before the current pandemic, we were moving away from cash but now it’s highly likely we’ll have a cashless society far quicker that we thought. As with all change, some people can embrace it while others struggle. Politicians are careful always to proceed at a pace that electors prefer. Sometimes electors and politicians need a nudge!

Cryptocurrencies are a step too far for most people – but digital banking offered by existing household names is already accepted. It’s ironic that the household names, (well-known banks), are despised. Could another party step into the fray? What about Central Banks? Well global Central Bankers are examining their use of digital currencies. In the first instance, they see themselves issuing digital bits rather than minting notes and coins. But the technology could go much further.

Let’s recap for a moment. Money and currency, although used interchangeably, are not the same thing. Money is an intrinsic store of value that measures the actual value of goods and services. Currency is one expression of money and a convenient unit and medium of exchange. Currency has no intrinsic value, and its flimsy notes and coins are based on sandcastles of trust. Currency can be debased, devalued and can ultimately disappear. There have been many forms of money through the ages from exotic seashells to precious metals, but none proved as popular as coloured paper with numbers. Could digital bits become the next expression of money?

It seems a likely and acceptable first step that Central Banks will utilise digital bits rather than notes and coins in the near future. To satisfy the young techies, the bits may simply be digital displays on phones or other devices. To accommodate others, there may be physical tokens – but you almost know from the start that these won’t last.

As the process evolves, it is easy to picture Central Banks acting as custodians and gatekeepers in a centralised version of the blockchain technology that underpins cryptocurrencies like Bitcoin. The presence of a central overseer will greatly irritate crypto enthusiasts but will impress the wary sceptics.

It is by no means certain how this will eventually play out. Commercial banks could lose access to the highly lucrative money transmission highway. Central supervision might represent a barrier; reminding some of Big Brother. Private industry could provide competition, especially where the authorities are not trusted. One thing seems assured – digital money is here to stay. How its currency expression evolves is uncertain. Somewhat comically, Central Banks will seek to engender trust by boosting their reserves with another store of value – gold!