Key learning points
* By 2028, only 9% of all payments are expected to be in physical currency.
* Central bank digital currencies (CBDCs) are in development, but their design raises questions about privacy and personal freedom.
* Critics claim that digital payment systems, unlike cash, can be monitored and refuse services without consequences.
The Inevitable Decline of Cash
According to a report from the World Economic Forum as of September 26, 2023, the use of physical cash has decreased by approximately 15% annually since 2017. The report estimates that by 2028, only 9% of all payments will be made with physical money. This decline is not expected to happen overnight, but is seen as an inevitable outcome due to the individual choices of millions of citizens and traders.
Convenience versus privacy
The shift to digital payments is largely driven by convenience. However, this convenience comes at the expense of personal freedom and privacy. Unlike digital payments, cash transactions do not require third-party consent and leave no trace. David Smith, economics editor at The Times, questioned the need for a digital replacement for cash, saying: “Why should anyone care? If I am now happily, or in some cases not so happily, using contactless payments , then why should I go to the trouble of loading up a digital pound wallet to use that instead?”
The role of central banks and CBDCs
Central banks are considering the introduction of central bank digital currencies (CBDCs) as a replacement for digital cash. However, the design of these CBDCs is subject to debate. Critics argue that if CBDCs don’t offer the same level of privacy and freedom as cash, they could face resistance, especially in developed economies. The report suggests that only central banks, due to their monopoly on cash issuance, can provide a digital cash substitute that balances both convenience and personal freedom.
Balancing act: freedom and regulation
While the idea of a digital cash substitute is attractive, it also raises concerns about potential misuse. Any system that allows untraceable or unblockable payments can attract criminal activity. Therefore, the challenge lies in designing a CBDC that mimics the characteristics of cash without becoming a digital ‘wild west’.
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