The tangibility of cash is certainly a very attractive feature. Things that are digital seem ethereal at one level. So I think there is some degree of security people have in holding cash.

As I point out in the book, there is this element that cash does come through in a pinch when you have natural disasters or other phenomena that cause communications systems to break down because of electricity failures and so on. So what characterizes the doomsday demand for cash may arrive at a time when people see a lot of troubling things happening around them.

It’s also this element that cash provides anonymity, which is certainly exploited by those who intend to use it for nefarious and illicit purposes. And this is one of the drawbacks of cash from the perspective of governments, that it allows central bank-issued money to be used for purposes such as money laundering, terrorism financing, and other illicit activities. And it also allows economic activity that be legitimate to flourish in the shadows, which means it’s no longer part of the tax net and it reduces government revenues.

But these are phenomena that we have seen for a while. The demand for high-denomination banknotes around the world has gone up quite a bit, suggesting that people seem to be holding on to cash as a store of value rather than as a medium of transactions or medium of exchange. Of course, it is hard to determine how much of the increase in cash holdings is accounted for by illicit activities, but it’s hard to imagine that the rate of cash usage in illicit activities has jumped during the pandemic. So I think it’s really people going back to what they feel comfortable with, which is holding cash even while they use it less.

Does cash go away?

It’s hard to imagine cash remaining a viable medium of exchange in the world once you get past the next five to 10 years, depending on which country you’re talking about. And I think the reason for that is that even if consumers prefer to use cash, for businesses, using cash is a hassle. They have to handle cash. They have to make change. They have to store cash. Cash is vulnerable to loss and theft. So we’re already seeing businesses around the world, you know, preferring to move to digital forms of payments. So I think both on the side of businesses and consumers, the desire to use cash is going to decline even faster once they have more options available. So it’s just very difficult to see a scenario in which cash has a viable future.

🎧 For more intel on the future of money, listen to the Quartz Obsession podcast episode on cash. Or subscribe via: Apple Podcasts | Spotify | Google | Stitcher.

Does that mean we will be using central bank digital currencies? 

That depends to some extent on how the CBDC is structured. So, for instance, if a digital dollar was structured in a way that each of us had essentially a central bank digital wallet that we could use very easily for transactional purposes, if that was interoperable across payment systems, meaning no matter what payment system a merchant might have, it is easy to make payments…that will certainly, I think, impel us towards using CBDCs. 

Of course, credit-card and debit-card companies—and credit-card companies in particular—have been very effective at maintaining their business, and they essentially do it by bribing us. So when you use a CBDC in a transaction, you pay for it and the money is gone. With a credit card you pay later, plus the credit-card company gives you some money back or perhaps some points on your mileage or hotel account. So I think at least in the US, this is why we see credit cards still retaining a fairly important role.

But I think increasingly they’re going to be trying to eschew the use of cash and shifting to digital payments, either through a CBDC or through one of the existing electronic forms of payment. And certainly, the creation of the CBDC is likely to force other sorts of payment providers, including debit and credit cards, Apple Pay, PayPal and so on, to become much more efficient, reduce their costs. So we could at some level be moving into a glorious future of very easy, low-cost digital payments.

Now that you’ve finished your book and done this wide survey, it sounds like you are an optimist. Is that fair to say?

I’m quite optimistic. I think these new technologies hold enormous promise. Like I mention in the book, we shouldn’t go into this with our eyes blinkered and assume that technology will fix all problems. There are not just risks but also issues, broad issues about what it means to live in a society where payments are only digital, and where the central bank may end up having an even more intrusive role in our society and our lives. I think you need to have conversations about these things at a societal level rather than viewing these as merely economic or technocratic issues.

And I also fear that while there is a promise of democratizing finance and making peoples’ lives better, there is also the risk that many of these benefits and gains might accrue to those who are already economically privileged. There are fundamental problems, such as unequal digital access, lack of financial literacy, that might leave us in a situation where the benefits go to a select part of the population and the risks are accrued by a very small segment of the already economically vulnerable. So I think there is a lot to hope for and a few things to fear as well.

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