Bring On The Cashless Fu­ture

Na­tional dig­i­tal cur­ren­cies seem daunting, but they’ll ben­e­fit gov­ern­ments and tax­pay­ers

Bloomberg Businessweek (Asia) - - BLOOMBERG VIEW -

Cash had a pretty good run for 4,000 years or so. Th­ese days, though, notes and coins in­creas­ingly seem dé­classé: They’re dirty and dan­ger­ous, un­wieldy and ex­pen­sive, an­ti­quated and so very ana­log.

Sens­ing this dis­sat­is­fac­tion, en­trepreneur­s have in­tro­duced hun­dreds of dig­i­tal cur­ren­cies in the past few years, of which bit­coin is only the most fa­mous. Now gov­ern­ments want in: The Peo­ple’s Bank of China says it in­tends to is­sue a dig­i­tal cur­rency of its own. Cen­tral banks in Ecuador, the Philip­pines, the U.K., and Canada are con­sid­er­ing sim­i­lar ideas. At least one com­pany has sprung up to help them along.

Much de­pends on the de­tails, of course. But it’s a wel­come trend. In the­ory, dig­i­tal le­gal ten­der could com­bine the in­ven­tive­ness of pri­vate vir­tual cur­ren­cies with the sta­bil­ity of a govern­ment mint. Most ob­vi­ously, such a sys­tem would make mov­ing money eas­ier. Prop­erly de­signed, a dig­i­tal fiat cur­rency could move seam­lessly across oth­er­wise in­com­pat­i­ble pay­ment net­works, mak­ing trans­ac­tions faster and cheaper. It would be of par­tic­u­lar use to the poor, who could pay bills or ac­cept pay­ments on­line with­out a bank ac­count or make re­mit­tances with­out get­ting gouged.

For gov­ern­ments and their tax­pay­ers, po­ten­tial ad­van­tages abound. Is­su­ing dig­i­tal cur­rency would be cheaper than print­ing bills and mint­ing coins. It could im­prove cal­cu­la­tions of sta­tis­ti­cal in­di­ca­tors, such as in­fla­tion and gross do­mes­tic prod­uct. Trace­able trans­ac­tions could help in­hibit ter­ror­ist fi­nanc­ing, money laun­der­ing, fraud, tax eva­sion, and cor­rup­tion. The most far-reach­ing ef­fect might be on mon­e­tary pol­icy: Cen­tral banks would no longer be ham­pered by what econ­o­mists call the zero lower bound—and could im­pose sig­nif­i­cant neg­a­tive in­ter­est rates.

Dig­i­tal le­gal ten­der isn’t with­out risk. A pol­icy that drives down the value of pa­per money would meet political re­sis­tance and—to put it mildly—re­quire some ex­plain­ing. It could hold

back pri­vate in­no­va­tion in dig­i­tal cur­ren­cies. Se­cu­rity will be an abid­ing con­cern. Non­cash pay­ments also tend to ex­ac­er­bate the hu­man propen­sity to over­spend. And you don’t have to be para­noid to worry about Big Brother track­ing your fi­nan­cial life.

Gov­ern­ments must be alert to th­ese prob­lems, be­cause the key to get­ting peo­ple to adopt such a sys­tem is trust. A rule that a per­son’s trans­ac­tion his­tory could be ac­cessed only with a court or­der, for in­stance, might al­le­vi­ate pri­vacy con­cerns. Har­mo­niz­ing in­ter­na­tional reg­u­la­tions could en­cour­age com­pa­nies to keep ex­per­i­ment­ing. And an ef­fec­tive cam­paign to ex­plain the new ten­der would be in­dis­pens­able.

If pol­i­cy­mak­ers are wise and at­tend to all that, they just might con­vince the pub­lic of a sur­pris­ing truth about cash: We’re bet­ter off with­out it.

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