Bring On The Cashless Future
National digital currencies seem daunting, but they’ll benefit governments and taxpayers
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.