It is not the pandemic that is driving this popular means of payment out of existence. all that COVID-19 To accelerate a trend that was already with us. When Steve Jobs unveiled the first iPhone in 2007, he began to eliminate the need for bank note, Autonomous cars, self-ordering refrigerators and our digital avatar in the metaverse will hit the final nail in King Cash’s coffin.
Covid-19 moved $5 trillion global retailing From offline to online, A large portion of this value was transacted in cash (47% in the euro area), the idea being that central bank-issued currency was essential for the purchase of daily essentials. After an initial boom in precautionary cash hoarding, curbs on mobility and the fear of catching germs from handling paper money forced a change in habits.
While governments gave out vouchers to increase spending – as in Hong Kong – millions of consumers and thousands of merchants became new users of online payment systems just to use handouts. Many people will continue to use these new methods to settle bills.
But how significant were these changes in the overall scheme of things? The different trajectories of banknotes in China and India provide a natural experiment to measure the relative importance of temporary shocks and stable ones. technological change,
Cash usage in India plummeted after Prime Minister Narendra Modi overnight canceled 86 per cent of existing legal tender as part of a failed economic experiment. That was five years ago. Nowadays, digital payment are booming, but cash is once again 14% of the broad money running in the economy – the same as before demonetisation. In China, where physical currency was made irrelevant by the growing ubiquity of Alipay and WeChat Pay, central bank IOUs account for only 4% of money in the public.
Technological advances lack the drama of practical shocks, but that’s no less surprising. As JPMorgan Chase & Co.’s Jeremy Balkin and Neha Watts remind us, the fastest way to move money from New York to London as recently as 2010 was to catch a flight from JFK to Heathrow and have it delivered in person. . His report, provocatively titled “Payments Are Eating the World”, is a series of changes taking place at once. In China, the super-app platform turned money; Elsewhere, a producer and the rise of the gig economy is doing this. Globally, 50 million people are blogging, making short videos or telling people what to buy on the Internet – and getting paid online.
bloombergdigital wallet are growing everywhere, but what is stored in them is changing due to another technological revolution: the blockchain. Fintech firm Circle has teamed up with Visa Inc. to enable business customers to spend USD Coin – a currency that pegs its value to the dollar – on the Ethereum blockchain with 70 million merchants. An equally important phenomenon is “buy now, pay later”, which is embedding finance (and cashless payments) even in low-value transactions: such as buying lipstick in three installments.
Wait until our 15 Internet-of-Things devices make their purchases, using programmable digital cash issued by a central bank to pay only when they get the right stuff. While all of this is happening in the real world, an entirely new parallel stream of consumption in the alternate reality of the metaverse could cost as much as $390 billion by 2025.
Innovation in payments is a bigger phenomenon in emerging markets than in developed economies. Last month, smartphone-based apps running on a shared public utility cleared the equivalent of $100 billion in domestic Indian payments, down from $15 million five years ago. And this is just the beginning. Alphabet Inc.’s Google, which alone managed $38 billion of these instant transfers, has now developed an Android-based sub-$100 phone. The idea is to bring mobile internet to the bottom of India’s consumption pyramid.
Cash is still coveted, especially in a highly informal economy like India. But its importance as a means of payment is declining. In 2003, about 35% of cash in the euro area was used in domestic transactions; That number fell to an estimated 20% in 2019. Anywhere from 30% to half of banknotes ended up overseas, while the rest are being deposited in the euro area: for some investors, a secure sovereign liability that pays zero is better than the downside – giving government bonds.
As cash disappears into the vault – without a central bank digital currency, or CBDC, replacing it – public confidence in the convertibility of deposits into official money may become “more of a theoretical construct than daily experience”, a recent research finds. According to the letter by Ulrich Bindsil of the European Central Bank and others. This can destabilize the entire financial system.
If all the money in circulation is private, controlled by e-commerce and social media platforms, the authorities will not be able to protect consumers from exploitation. This is why even in countries where technology has turned it into a chronological appendage, cash cannot be allowed to die. Not before the CBDC is ready.