More and more elements of our life are moving to the digital space and money is no exception. Paper money has facilitated the exchange of the value of goods and services for centuries, but a renewal of the financial system is necessary to meet today’s needs. For this reason, many governments are beginning to experiment with digital currencies and are exploring the best mechanisms to reduce the turnover of cash..
Cash and crime
Paper money is the preferred method of settlement for individuals and organizations engaged in illegal activities. Harvard Honorary President Peter Sands sees cash as an untraceable way to stimulate and develop the underground economy. According to him, no other payment instrument provides simultaneously anonymity for the payer and the recipient, the absence of traces of transactions and such widespread use..
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Without cash, it would be much easier to detect large-scale criminal activity, since the illegal flow of funds it is necessary to move around the monitored bank accounts.
In addition, reducing dependence on paper money helps to reduce street violence. Forensic research shows that in areas where residents prefer cashless payments, the overall crime rate is 10% lower.
Since paper money leaves no traces, it is extremely difficult for tax authorities to verify or track their movement..
For example, when an employer issues wages to employees in envelopes, they both do not pay social contributions, income tax. As a result, the state does not receive part of the funds, which is the main reason for the tax gap..
According to research, the member countries of the Organization for Economic Cooperation and Development (OECD) annually lose an average of 2-3% of total tax revenues (or about 1% of GDP), and for low-income countries this figure is 6-13%.
Cost and ecology
The production of material money costs money. The cost of minting coins with denominations of 1 and 2 rubles exceeds their actual value. This is an inefficient use of resources, even without taking into account the fact that the process of their production, metal smelting, ore mining and transportation, has a negative impact on the environment..
Support of non-cash payments by the state
Economists believe that the most significant contribution of the smartphone, as an invention, is applications that turn a mobile device into a full-fledged wallet and a reliable tool for non-cash transfers and payments. Therefore, tech giants such as PayPal, Ant Financial, Tencent and Go-Jek offer the market products that allow free peer-to-peer electronic payments to billions of people in the world’s most populous countries.
Governments are also working to promote cashless payments and, at the same time, reduce the cash supply. In countries such as Sweden, France, Great Britain, the system has been established so well that citizens have practically abandoned the use of cash, whose share in the total turnover is only a few percent.
The development of blockchain and other financial technologies encourages central banks to move away from standard models and develop digital currencies.
In September, the Marshall Islands announced the release of the national digital currency Sovereign with a fixed increase in the money supply. China intends to launch a pilot project and test the digital yuan before the end of this year, and France plans to do the same in the first quarter 2020 year. Countries such as Sweden, Turkey, Ghana, UAE and Saudi Arabia also reported on the development of their own digital currencies..
In addition to improving the efficiency of financial systems, security and speed, the use of digital money allows banks and regulators to authenticate users, monitor transactions and comply with due diligence principles..
The rise of cryptocurrencies
Soon we will see the launch of digital currencies not only in developed but also developing countries, since the authorities cannot ignore the clear benefits of using them. This, in turn, will stimulate the growth in popularity of decentralized cryptocurrencies that can legally coexist along with public money.
In the future, coins such as bitcoin can become the universal currency of the Internet and can be freely converted into any national digital currencies. It will simplify e-commerce, commerce, remittances and allow billions of people without access to banking services to integrate into the global economy..
A financial revolution is inevitable as it is supported not only by corporations but also by governments. So take another look at the bills in your wallet, they may soon become a souvenir and part of a history lesson for our children..
text: Maria Alyaeva, photo: fotokonkurs, hotsi