When Cash becomes Digital

Money evolves over time. Successive innovations, from coins to banknotes, checks, credit cards, online banking and mobile payments, have made spending more convenient and secure.

While the form that money takes has changed, none of these innovations have fundamentally changed the relationship between the issuers of money, central banks, and households.

Central banks remain monopoly suppliers of currencies, managed through commercial banks. The banks, in turn, provide accounts, transaction services and access to credit and cash for households.

Today, technology has the potential to change these relationships in ways that weaken the power of central banks.

Cryptocurrencies, such as bitcoin or ether, pose the most obvious threat. Yet fluctuating values mean that cryptocurrencies are today mainly used for speculation, rather than transactions.

A simple innovation could crack this problem. The value of so-called stablecoins are linked to a benchmark asset, generally an existing currency or a commodity.

Pegging a cryptocurrency in this way could give the stability and credibility which is the essential characteristic of a traditional currency. Last year Facebook caused a stir when it announced a plan to create its own stablecoin, Libra, linked to the dollar and other currencies.

The prospect of one of the world’s biggest tech companies moving into digital currencies unnerved central banks and provoked a barrage of criticism. Libra looked as if it could morph into every central banker’s nightmare – a credible, mass use private currency.

Controlling the price and quantity of money is a vital arm of economic policy and an expression of sovereignty. It is also a very profitable business and one no central bank would cede willingly. In the wake of concerns voiced by politicians and regulators Facebook has scaled back its initial plans.

Now central banks are going on the offensive against cryptocurrencies and stablecoins. Across the world most central banks, including the European Central Bank (ECB), Sweden’s Riksbank, and the People’s Bank of China, are exploring the creation of their own Central Bank Digital Currency (CBDC).

A CBDC could be a token-like digital instrument issued by central banks, direct to households and companies. As well as holding money with a commercial bank, an individual would have an account with the central bank.

Unlike cryptocurrencies CBDCs have the advantage of being guaranteed by the central bank, and exchangeable for physical cash, with one unit of the e-currency worth one unit of physical currency. CBDCs would work alongside physical currency and the electronic money operating through private networks which accounts for the bulk of transactions.

Central banks see CBDCs as a way of strengthening the role of sovereign currencies in an increasingly cashless world.

Part of this is to offer an alternative to cryptocurrencies. And with the share of cash transactions shrinking central banks see CBDCs as a natural evolution.

Earlier this month the ECB said that higher demand for electronic payments creates a greater need for a “risk-free digital means of payment”, which a CBDC could provide.

Rather than leaving the private sector with a monopoly of electronic money, a CBDC would give households and businesses the ability to hold money, risk free, with the central bank and to use it for everyday payments.

A digital pound or dollar would also give policymakers a new channel for operating monetary policy directly with the private sector. In an age where policy is stretched, with interest rates close to or below zero, this has attractions.

Central banks would be able to set interest rates on money in the accounts of households and businesses, rather than operating through commercial banks. In a crisis central banks could go further still, using the digital channel to extend loans or even give money directly to the private sector to stimulate demand.

Digital central bank currencies are a radical and untested idea. CBDCs could make it harder for commercial banks to attract deposits, hampering their role in allocating credit in the economy.

A solely digital currency could, like today’s electronic transaction systems, be vulnerable to cyber-attacks or technology failure. Consumers might balk at the use of central bank currencies, seeing them as a prelude to the abolition of physical cash.

But even in a digital age that moment looks some way off. In the UK, 2.7m people, 5% of all adults, spread relatively evenly across all age groups, rely almost entirely on cash to make their day-to-day payments.

COVID-19 has further reduced the volume of cash payments but it has stoked demand for cash. In the UK the value of physical currency in circulation has risen by 11% since the beginning of the crisis. When times are tough we like the comfort of cash.

CBDCs aim to achieve the best of all worlds – the convenience of new digital technologies, the regulated, reserve-backed money supply of the current banking system and physical cash. Money has always evolved.

The next stage in that evolution is underway.

Experiments with a digital euro in Italy have already begun, initiated by the Italian Banking Association (ABI), an organization made up of 700 local Italian banking institutions. The group also disclosed that it wishes to run trails for a central bank digital currency (CBDC).

The aim of a digital euro, currently in its pilot stage, is to facilitate interbank settlements, improve cross-border payments, and review the possibility of a CBDC. The Italian Banking Association announced these plans all the way back in June. However, it just recently started working on them.

they wont never pass to an all digitalised world. let me explain you why and you will understand really fast

reason number 1 : there is people who work for police as whistleblowers/personns who gives indications about terrorist/drug dealer etc. and police have to reward these people with money. they reward them with physical money for their security, like this it is untraceable and banks cannot know (because if you receive 500-1000e per week from “Banque de france” where you declared that you dont work for them, banks gonna ask questions)

reason number 2 : many high ranking jobs are occupied by people who take cocaine daily. Wheter it is politicians, bankers or CEO ,etc : they need to pay their coke and they need to do it with physical money for obvious reason of being not traced by their bank

alright, i think these 2 reasons was sufficient to show you that a world with only digital money is impossible. and there is many others reasons (the list continues)

1 Like

absolutely noone is using neither investing in your ponzi scheme that you pretend it will replace the actual monetary and banking system while you dont even have an idea at the legals, economical , tecnical,fundamentals , technological overview about it

the price of your fake asset just have been artificially rised by creation of tether ex nihilo and injection into it. the whole crypto system is a scam (from since creation to the artificial rise)

you was just been powned by charlatans who promised you irrealist returns out of a thing you dont even know how it work neither who own it. these charlatans have a great conflict of interest while making you the publicity of it (mix of an MLM and a ponzi scheme)
you’d better think more before making something , moreover that now you are not only risking your own future but also you are telling to other people to risk their own future on a fake asset non regularised. you’ve become a charlatans too, unfortunately

you are now a participant in this scam and therefore need to be considered as a criminal (as well as the terrorist, drug dealer, criminal marketers,etc that use your scam)

your post are not useful to the community, therefore i just reported you

boooooooohhhh booooouuuuhhh. you deserve to be “bouhed” in a public place and throw tomatoes

be humiliated under the hooted of the delirious crowd

The European Central Bank approved a plan that could lead to the adoption of a digital euro by the middle of the decade.

ECB initiated an “investigation phase”, which will last for two years and is expected to resolve a number of technical issues regarding the design and the distribution of the future digital coin, the Institution said in a statement.

ECB however clarified that its current initiative “will not prejudge any future decision on the possible issuance of a digital euro, which will come only later. In any event, a digital euro would complement cash, not replace it”.

1 Like

Good post Crypto…

Everything you said is spot on.
I believe everyone needs to read that first post.
If you want to know what’s gonna happen, in our industry, for the future, it’s gonna be this.

Unless you are new on this planet, (anon), you need to realize these facts.

  • Every major central bank is working on their own CBDC.
  • The BIS is working on their own guidelines on the subject.
  • China is, by far, leading the world on the matter.
  • The whole reason why this is a subject to begin with is because of what’s been happening in the crypto market.
  • The central banks want control over what’s gonna be the inevitable. Digital money. It’s coming, and there’s nothing they’re gonna be able to do about it. Except join them (but on their own terms).

These are facts.
Opinions mean nothing.

There are numerous white papers being drawn up all over the world on how it should be developed. It’s just gonna be interesting to see how it takes shape. And it won’t be that easy, cause the world is too interconnected for there to be all kinds of different CBDC’s to deal with. But on the other hand, there needs to be a consensus and an agreed upon methodology. Remember the Bretton Woods agreement?

Well, there’s gonna be another one of those, a new international monetary system. And what’s going to be central to that is precisely the CBDC issue.

And what about the world’s reserve currency?
Will that take a different form?

Changes are coming. And you need to be aware of this.
Sure, you can deny, oppose, argue everything there is about cryptocurrency in today’s day and age. But it’s not going away. And that’s why the central banks are trying to curb that fact (“we’ll just come up with our own, that’s all”).

Don’t be ignorant of what’s going on.

Mike

P.S. ----
Read part III in here.
Facts.
BIS Annual Economic Report 2021

2 Likes

Great comment, Mike.

If you want to get into the weeds, have a read on stablecoins and their potential to impact an economies financial stability and control of the money supply.

Quick primer:

1 Like