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Cash is censorship-resistant. It’s the only payment mechanism where you don’t need authorization from anyone to spend it. Will we miss it once it’s gone?
This is a pressing question as we quickly move into digital. Governments are looking at introducing central bank digital currencies(CBDCs) and how these electronic equivalents will work in real time are currently being determined.
Governments and central banks need to answer the following: If physical cash declines to irrelevance – which is looking the likely route – does this mean our historic right to make payments that are not observable or censorable by the state would die on the same day?
The retail level decline in cash
ATM withdrawals remain at 30-40%They are now lower than they were before COVID. Many are asking whether this means that a digital version of the CBDC is needed. The exact features that a CBDC might have are political, and not technological, questions.
It is unclear what a CBDC actually is. doesn’tTrue cash-like features could address any real unmet consumer need. The worst outcome is to build new CBDC systems that are too expensive and not popular enough. There is also the risk of a backlash from the public if they discover that their money has been used on projects that will end their historical right to pay anyone they want without asking permission.
With or without political overtones, CBDC can be made in countries that do not have a mature payment infrastructure. The reality is that electronic payments work well in the majority of Europe and the UK. It’s so easy to tap your card and pay that you might wonder what remaining problems are left to be solved. However, something often missed about the architecture of the payment card networks is that every payment involves an “authorization”: whenever you tap there is an opportunity for your bank to say “no.” Cards alone don’t provide all the same features as cash; you never have to worry that your cash payment “won’t go through.”
It has been possible to trade directly with other humans since the dawn of time. It is certain that cash will soon disappear. Somethingit should be taken over. We’ll regret losing the unique properties that cash, and no other payment method, gave us. We may regret not pushing harder today to ensure that cash’s digital replacement was truly cash-like, with all the good – and bad – that entails.
Cash’s ability to be held and spent without permission is not only a source or privacy, but it also facilitates crime and terror. So it’s entirely natural for policymakers to see cash’s demise as an opportunity to fight back against the forces of darkness. It would be a tragedy if we did this and also lost all of the good.
In other words, it is important to engage in a debate about how to strike the right balance between freedom, law enforcement, and democracy. WhoShould money be spent without permission? How muchShould they be allowed transacting or holding? What and where?Could such digital money be used?
Convenience vs. Privacy
A fair response to my argument would be to Please say, “If consumers value cash’s unique properties so much, they have a funny way of showing it!” Indeed, a lesson that technologists learn – frequently to their dismay – is that what consumers sayThey want and they do not get what they need. This is what consumers want. DoingElectronic payments offer more convenience than privacy and freedom.
It is safe to say that when cash is becoming more difficult to access and cards are easier to use, it is safer to assume that consumers won’t complain if their privacy rights to make transactions public. In a world that feels like nothing is private and with increasing concerns around data privacy, it seems a safer bet to assume that consumers will continue to expect to have the ability to pay for some items or services without feeling like they’re being watched. It seems reasonable to assume that digital cash has this property.
Collaboration between the public- and private sectors is crucial
A system that allows individuals to make payments that can’t be traced or blocked would naturally cause policymakers to be fearful. Some central banks argue that CBDCs can be seen as a new kind of money and not an alternative to cash. Yet if a CBDC doesn’t have some element of this capability, my prediction is it will fail. Consumers in mature economies would not be able to accept such a thing. So, whether a CBDC is positioned as a new form of money or a replacement for the oldest form of money — cash — it’s still important to analyze through the same lens of consumer attractiveness.
If the private sector could deliver a truly cash-like product themselves, then we wouldn’t need this debate. Despite this, the reality is that the mainstream private sector cannot provide financial privacy of this type without substantial public policy engagement and support. It’s perhaps no surprise, therefore, that the only digital cash-like systems presently in operation are Bitcoin and the systems it inspired: operating entirely outside governmental control and oversight, with no limitations on how “censorship-resistance” is applied.
Ironically, however, it could only be by allowing some level of cash-likeness in a CBDC with all it entails that governments and central bank retain a pivotal position when the last cash payment has been made.
Digital cash replacement is only possible with partnership between the private sector and government. These partnerships are strong and active, fortunately. R3 is one example of a firm that, like many others, works on these issues and has participated in various models of CBDC delivery. In R3’s case, the Corda enterprise blockchain is being used for multiple projects around the world, most recently Project Jura.
With all this in mind, I believe we are at a time where the delicate, political question of “how cash-like should a digital cash platform actually be?” is rapidly becoming the question that will determine the implementation of entire countries’ future cash systems.
Richard Gendal Brown serves as chief technology officer. R3.
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