When will digital currency replace money?

A discussion of whether digital currency will replace money was launched by the highest echelons of financial authority at the Singapore FinTech Festival in 2023. The IMF’s managing director, Kristalina Georgieva, said that digital currencies have the potential “to replace cash” as they “offer resilience in more advanced economies [and] improve financial inclusion where few hold bank accounts,” in reference to a specific kind of digital currency known as CBDCs. Since 2009, the exponential growth and adoption of cryptocurrencies have caught the attention of governments around the world, leading them to pay close attention to the benefits they offer consumers, merchants, and businesses. From faster and more cost-effective payments to enhanced security and privacy, the benefits of using digital currency are swiftly leading scores of people to choose them over traditional FIAT money. 

But when will digital currency replace money altogether? Is it even possible? In this article, we explore potential scenarios of a world without cash, take a closer look at CBDCs, and offer some examples that are already on their way to embracing a cashless society. 

What is digital currency?

Digital currency is money that exists solely in electronic form. It differs from traditional electronic currency as it never leaves the digital realm, unlike dollars, euros, yen or pounds, which can be converted into physical cash. There are several kinds of digital currencies in circulation today, and the main difference between them lies in their level of centralization. 

Decentralized digital currencies, also known as cryptocurrencies, such as Bitcoin and Ethereum, operate on blockchain technology. Transactions are strictly peer to peer, and are verified by a distributed network of independent computers, reducing the risk of manipulation and maintaining a high level of privacy for individual users. 

Centralized digital currencies on the other hand are controlled by a single entity, such as a bank, which has the power to monitor transactions and manage the currency, which could lead to potential abuses. For this reason, many members of the native crypto community are cautious about their integration into the digital currency sphere, as they diverge from the original philosophy of decentralization on which cryptocurrencies were founded.

What are CBDCs?

CBDC stands for central bank digital currency. This digital currency is issued and managed by a country’s central bank and functions in a similar way to cryptocurrency, only with government backing. The first CBDC was the Avant Smart card, launched by Finland in 1994, although the system was eventually abandoned in the early 2000s. Today in 2024, over 100 countries are currently investigating the implementation of CBDCs, including Australia, with two CBDCs currently in circulation in Nigeria (the eNaira) and in The Bahamas (the Bahaman sand dollar). 

The motivation behind launching CBDCs, as stated by the IMF’s managing director, Kristalina Georgieva, is to enhance financial inclusion and serve unbanked and under-banked populations, aiding access to money and financial services in countries with weaker infrastructures. In the U.S., discussions focus on how a CBDC might significantly alter the financial system, raising concerns about privacy and financial autonomy. 

Will digital currency replace money?

As of yet, there is no definitive answer as to whether digital currency will replace money some day. The outcome bears on many factors including technological advancements, regulatory decisions, public acceptance, levels of digital literacy, and more. On a global level, digital currencies are gaining traction. 

With 575 million cryptocurrency wallets in existence, the conversation surrounding digital currency and its acceptance has come a long way since its launch in 2009. The benefits it offers, including faster transactions, reduced costs, and improved financial inclusion, may well be decisive in making them a mainstream feature of our financial landscape. However, both cryptocurrency and CBDCs are not without their risks, at least today: privacy, security, and the potential disruption to existing financial systems are all factors under discussion by governments around the world. 

In the short term, the likelihood is that digital currency will coexist alongside traditional currencies such as dollars, euros, and pounds, offering benefits such as greater financial inclusion to specific populations and communities underserved by current centralized systems. As global literacy and trust in digital currencies increases, so might their presence, availability, and accessibility, potentially leading to a gradual shift in how people conduct transactions, store value, and engage with financial services.

For more on digital currencies, crypto as a form of payment, and how, as a merchant or business, to accept crypto payments from your customers, visit www.forumpay.com, or get in touch with our sales team to discuss any questions you may have.