Some might say that we are entering into a “cashless” society or at least in a “less-cash” one. There are various existing drivers in many countries of the world, such as contactless payments with our credit cards, smartphones, or smartwatches that lead us all to use less and less tangible money. These technologies create more space for digital money in our daily lives.
What is it?
As for the name of it, digital money is not tangible like dollars, euros, or any other currency; however, it is as real as all of them. The most common example would be money issued by banking institutions that are held electronically. Digital money can also include cryptocurrencies (digital money that exists within the blockchain network), from which the most successful is Bitcoin, as you may already know. All digital money is exchanged using technologies, such as smartphones, credit cards, and online cryptocurrency exchanges.
What are the benefits and limitations of it?
When choosing digital currencies, there are various benefits that come along with the trade.
- Lower transaction costs,
- Increased efficiency of cross-border payments,
- Higher speed and increased transparency in debt markets,
- Access to the global market, etc.
There are certain limitations that we cannot leave out of consideration. A major one is the possibility of financial exclusion for certain groups, such as the aged, disabled, and poor, if overlooked and not included in the target audience. Even now there are countries where people have limited access to bank accounts or the internet, making cash the only option.
In many of the developing countries, the numbers are rising and there are a few cases to learn from, for example, India where policy, launched by its government in 2014, boosted account ownership using biometric identification cards. While some economies, such as Pakistan or Ethiopia, did not reach their potential by inadequately including an important group — women.
What is next for us in the field of digital money? In our upcoming blog, we will continue the discussion and give examples of certain countries and their plans.
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Sources:
An addendum to “A Cashless Society- Benefits, Risks and Issues (Interim paper)” by O.Ward & S.Rochemont, Institute and Faculty of Actuaries
The Global Findex 2017
Investopedia
