The Future of Digital Currencies

Looking to understand why citizens have taken to the streets in El Salvador to adopt the bitcoin as a legal tender? Enter economist Aishwarya Prasad, with his fully researched book The Future of Money. He points out that inventions in payment systems and currencies reflect both significant changes in the global economy as they integrate major developing countries such as China and the global digital transformation. As money has become free to roam the world, Prasad is exploring how digital innovation is reshaping it as both a tool and a concept. Two things are a sign of change. The first relates to money as a physical being. Digitization of payments challenges the idea of ​​cash as the ultimate form of cash. However, cashless transactions lose privacy as they leave electronic markers. This does not seem to be a problem for the majority of people and businesses who legally engage in such transactions. And the need for digital payments for transactions over a certain amount will help shrink the off-led economy. In Italy, for example, where this shadow economy accounts for about 15% of GDP, payments of € 2,000 (US $ 2,350) or more can no longer be settled in cash.

The dominance of data collected through digital transactions remains an open question, which, according to one observer, cannot be dismissed as a product of liberal bigotry over "harmful or misleading government interventions." Protecting individual liberties and privacy is a legitimate issue in an open, democratic society in which concerns about the use of personal data are addressed in a transparent and accountable manner.

Prasad scratches the surface of this complex subject. He seems satisfied with the possibility of expanding the existing fiscal rules. For example, he discusses regulating how and when financial technology (Fantech) companies should hand over personal data, rather than reviewing the entire regulatory framework.

Another aspect of the digital challenge for money is what constitutes a legal tender, and who is the issuer and guarantor. Traditionally, currencies issued and secured by central banks are legal tenders - for example, they must be accepted to settle a private party's debt obligations. But cryptocurrencies issued by private companies, especially bitcoins, are now part of a growing number of transactions. Bitcoin was also briefly accepted by electric car maker Tesla, with the firm's chief executive, Elon Musk, backtracking on the idea on the currency's large carbon footprint.

So who or what is at risk here? Private cryptocurrencies are fiat money, meaning their value is not supported by solid assets like gold. They share features with central bank currencies, such as being able to settle payments. But cryptocurrencies lack transparency, accountability and governance. They are less secure (for example, if you have Bitcoin, and lose your unique password, you lose access to your account forever), more volatile and cash-like anonymity Can't guarantee the same level.

Prasad conclusively concludes that private cryptocurrencies - such as Facebook's proposed dam (formerly known as Libra) - are more of a fraud than a serious threat. It is likely that they will become special assets to speculators, or just as curiosities, as the central bank prepares to launch its digital currencies.

Despite its subtitle, the future of money is not limited to changes in banking and financial services. Prasad is keenly interested in the social effects of digitalization of money, such as making finance more comprehensive. According to the World Bank, approximately 1.7 billion adults worldwide do not have a bank account. Among other things, this means that immigrants who want to send money home often rely on expensive remittance services or personal contacts.

Fintech can provide affordable financial services to all segments of society, including rural and low-income households. In Kenya, for example, the mobile banking service M-Pesa, introduced in 2007, allows small businesses in remote areas to securely and easily transfer and transfer money via mobile phone.

As with all attempts to define an uncertain future, the future of money leaves many questions open. At one point, however, Prasad seems confident - that although cash will become more modest, it will never run out. After reading his account about the possibilities offered by digital money as well as its flexibility and convenience, it is a bit surprising. Prasad seems to accept that people want to protect their privacy. He concludes that as long as people value convenience and anonymity, a cashless society is not on the cards. It's hard to disagree.

Completely eliminating cash will require fully digital societies, with extensive and reliable infrastructure, universal access to devices and people willing to leave electronic markers. Although the epidemic has rapidly tracked digital payments, we will probably always carry a little cash, just in case.