Bloomberg’s Editorial Board has published a piece putting the entire idea of how we use cash as a society under a microscope. While cash has undoubtedly had a moment for a few thousand years, Bloomberg’s editorial piece speculates on why cash has become somewhat passe and the goes on to address some of the many advantages, along with a few of the disadvantages to be had with various digital currencies.
In what was an eye-widening announcement for the rest of the world, when the People’s Bank of China stated that it intends to begin issuing its own digital currency, even nations that have kept a cautious eye on the evolution of digital currencies started to take note. Digital currencies such as Bitcoin and other blockchain related topics have also been a hot topic among elite financial executives recently.
The effects go far beyond simple monetary policy, as broader economic, social and financial effects would surely not be far behind.
“A digital legal tender could resolve this problem. Suppose the central bank charged the banks that deal with it a fee for accepting paper currency. In that way, it could set an exchange rate between electronic and paper money — and by raising the fee, it would cause paper money to depreciate against the electronic standard. This would eliminate the incentive to hold cash rather than digital money, allowing the central bank to push the interest rate below zero and thereby boost consumption and investment. It would be a big step toward doing without cash altogether.”
In more practical terms for the average person to understand, an exclusively digital monetary system as opposed to cash, would make moving money around from people to business and business to business much easier, faster and cheaper. Increased efficiency and cost savings would benefit the poor especially as their barrier to do certain high-fee tasks at banks would be lowered.
One of the largest challenges presented in this editorial is that of convincing a country’s people that cash isn’t worth holding. Political resistance against such a movement away from cash as currency to a digital fiat would be certain. However, education of the masses to the benefits of implementing a digital currency would be the main point of friction that governments could avoid in such a scenario.
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