We should replicate the unique properties of cash in the digital realm

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Cash resists censorship. It's the only payment mechanism where you don't need anyone's permission to spend it. Will we miss him once he's gone?

This question is pressing as we rapidly enter the digital realm. Governments are considering introducing central bank digital currencies (CBDCs), and exactly how these electronic equivalents to physical cash will work are being decided right now.

Governments and central banks need to answer the following question: if physical money becomes irrelevant - which seems to be the most likely path - does this mean that our historic right to make payments that are not observable or censorable by the state will die with it? daytime?

The decline of species at the retail level

ATM withdrawals are still 30-40% lower than they were pre-COVID. Many wonder if this drop in cash for retail purposes means a digital equivalent needs to be launched. However, the exact characteristics of a CBDC would be political questions, not dry questions of economics or technology.

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This is because it is completely unclear that a CBDC that has no true cash-like functionality would meet any realistic unmet consumer need. So we risk the worst of all worlds: building expensive new CBDC systems that fail to gain consumer adoption. We would also risk the possibility of a public backlash when citizens realize that a huge amount of their money has been spent on initiatives that hasten the end of their historic right to make payments to whomever they want without having to ask permission.

In countries without mature payment infrastructures, the CBDC's case is easy to make, with or without the somewhat political overtones. However, the reality is that electronic payments in most countries in Europe and the UK work just fine. It's so easy to use your card and pay, you might wonder what problems still need to be solved. However, something often missing in the architecture of payment card networks is that every payment involves “authorization”: every time you type, your bank has the option to say “no”. Cards alone don't offer all the same functionality as cash; you never have to worry about your cash payment "not going through".

Indeed, since humans trade with each other, it is possible to trade directly, without needing the authorization of a third party. If money is going to go, surely something has to take its place. We will regret losing the unique properties that cash, and no other means of payment, gave us. We may wish we had pushed harder today to make sure the digital replacement for cash really does feel like cash, with all the good – and bad – that entails.

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After all, the ability to hold cash and spend it without permission is not just a source of personal freedom and privacy; it is also a catalyst for crime and terrorism. It is therefore quite natural for policy makers to see the disappearance of cash as an opportunity to fight against the forces of darkness. However, it would be a historic tragedy if, in doing so, we also extinguished all that was good.

In short, we need an informed debate, as soon as possible, about what the right balance between freedom and law enforcement should be. What...