It is interesting to try to look into the next five to ten years and try to work out the end game as countries are eyeing up the inevitable move toward a cashless society where digital currency is the norm.
Idealistic scenarios in the past have often been wildly inaccurate because some part of the “evolution” had not been factored in.
When considering what a “centralised” currency would take the form of and its effects on daily life, we can first consider that this would be a form of digital currency that would be deemed “Legal tender” and issued by the Government or bank which are essentially, one and the same.
The centralisation aspect comes in when all the data on every dollar transaction is recorded, which means that the code signifies all of this. This information is stored, gathered and analysed. The new “Blockchain” technology allows this to be perfectly actioned, quickly and with reasonable security.
The appeal lies in it’s convenience and usability. Our phone apps will be able to store the digital currency as well as the use of Currency cards that can be used even when systems are offline. What we will “give up” is our privacy but this is the trade-off that many people may be willing to accept.
The centralised digital currency would probably be powered by a “private” blockchain controlled by the National bank. The bank would then monitor and regulate all transactions. Personal information would be shared with various government authorities, such as the Tax department and Police department, among others.
The loss of true ownership of both physical and digital form of the currency means that your money could be primarily controlled by the bank.
So, what are some advantages to the government and the banking system?
Payments would be quicker, more efficient with less cost and reduced transfer times.
There would be less volatility in the national digital currency and will be accepted as a “common” system of legal tender. The digital only form, it could be argued, reduces corruption money laundering in cash.
Now let us look at the other side of the “coin” – Decentralised digital currency, or non-governments digital currency.
The digital currency in use on the decentralised system is called “Cryptocurrency” and the main “Coin” is Bitcoin. There are also many other cryptocurrency coins known as “Alt” (Alternative) coins.
You can buy a bitcoin “hard wallet” (looks much like a USB stick) and store cryptocurrency in the wallet.
Decentralised means that there is no central point of control. It is a distributed or peer to peer system where the data is stored throughout the decentralised network.
The new blockchain technology is also used but this serves to empower individuals as no one person or authority controls the system.
The decentralised system offers a high degree of transparency and security in that all transactions can be viewed by anyone, but the names of the sender and receiver cannot be viewed. The data transaction cannot be edited or changed in any way and the transaction is almost instant.
There is no currency exchange needed and no middlemen to take a “cut” of the transaction value.
Some negatives to consider are: The bitcoin price can be volatile as it is still relatively new, only coming into existence in 2009.
Bitcoin payments are irreversible so you would need to be very careful that the receivers address is correct. Trading in Bitcoin is still very limited, so still not widely accepted. There is no “Physical” form (No coin) and it is illegal in some countries.
The present situation is that most countries are still at the conceptual stage. Japan and China are already piloting a centralised digital system. Facebook is close to launching it’s own “private” digital currency called Libra.
The US federal reserve has not included itself in the current European and Japanese collaborations, but have just this month passed a law that allows banks to hold digital currency in deposit.
The implications for a cashless society from a New Zealand perspective is that there are current laws that ban cashless commerce (at present). It could spell the end of “fundraisers” on the street. Online technology is not mastered by all so some interim facilities would need to be provided until such time that ease of use is improved.
Questions will be raised over personal freedoms and privacy over the gains in improved convenience.
The only inevitability is that digital currency is here to stay, and cash will become less of a factor in our everyday lives.