The Future of Cash: Why a Ban Doesn’t Make Sense
A ban on physical cash may be tempting for many players in politics, business, and the financial industry; by taking such a step and switching to a fully digital monetary system, money flows could be tracked much better and black market payments could be detected more easily. However, compared internationally, the Germans in particular are traditionally attached to cash and are still very happy to use it in their daily lives.
However, the abolition of coins and bills does not have to be a bad thing, per se — as long as there are technologies that can facilitate the transactions that are carried out with cash today and are “cash equivalent”, and thus also include the aspect of anonymity. But here’s the catch: it is unlikely that government agencies would choose such an anonymity-preserving solution. If anything, they would probably consider a centralized digital solution that would make it easier to detect black market payments, for example.
So, how likely is it that the ever-popular cash will actually be phased out?
A centralized and monitorable cash alternative as outlined above would — to put it mildly — be met with little enthusiasm among the population and, in today’s political landscape, would not be enforceable. Since the beginning of the COVID-19 pandemic, the use of cashless means of payment have risen sharply. Young people in particular are much more open to digital payment transactions and use these tools a great deal. Against this background, a real cash ban is unlikely to be necessary in the long term — coins and bills will disappear on their own with decreasing use. However, this is a generational process that will take decades.
Of course, a future without cash presupposes that all actors in society can use digital payment options. But, who knows — perhaps in 20 years’ time, the idea of pushing paper bills and pieces of metal over a shop counter will seem antiquated to us. Maybe children will even carry a small digital payment device with them instead of their first wallet, similar to a smartwatch, with which they can independently spend their digital pocket money at the flea market
The Euro & the US Dollar don’t have to last forever.
In addition to the question of the technical implementation, the more important question is: What currency will we be paying with in the future? There is no absolute guarantee for the long-term existence of euros, dollars, and other physical currencies. That is because the risk of a major crisis in our fiat money due to extreme over-indebtedness and possible hyperinflation is not unrealistic in the long term. In such a scenario where confidence in centralized currencies is dwindling, cryptocurrencies have the potential to replace fiat currencies. In ten or twenty years, cryptocurrencies are likely to be so mature and established that we will already have a complete alternative financial ecosystem on which a new currency system can emerge.
The European Central Bank is already talking about the e-Euro as a digital cash alternative. Even if this is not a decentralized cryptocurrency, the introduction would mean the first step towards digital and thus also cryptocurrencies for many people; once every user has their own e-wallet to store their e-Euros, the move to decentralized digital currencies is sped up.
Even if there is no need to fear a cash ban “from above”, the future of payment is clearly digital. Whether a centralized Euro remains in the end as an e-Euro, or decentralized cryptocurrencies get their chance as everyday means of payment, depends on the long-term development of our current currency system. The chances of crypto popularity is thus much better than some might think.
German version published on 07/07/2021 @ https://www.geldinstitute.de/trends/2021/zukunft-des-bargelds--warum-ein-verbot-nicht-sinnvoll-ist.html
About the Author:
Michael Geike is a mathematician with over six years of experience as an investment banker at JP Morgan. He has also led teams of data scientists specializing in the optimization of payment algorithms for Zalando, and has worked with Distributed Ledger Technology for over nine years and founded various projects in this area, including the first publicly-traded company in Europe to focus exclusively on cryptocurrencies. As a student, Michael earned his MSci in Mathematics from Imperial College of London. He then spent seven years in the financial industry, where he acted as vice president of the investment derivatives branch of JP Morgan’s London branch. At Advanced Blockchain AG, he channels these experiences to positively influence the blockchain-based companies, markets and economies of tomorrow.
