By Alex Tapscott
Could your cash be contagious? The World Health Organization recently declared that hard currency could be carrying COVID-19 and encouraged people to use contactless payments when possible. This comes on the heels of China’s drastic move to literally launder its money by taking cash out of circulation and either cleaning or destroying it.
For decades, cash has been increasingly marginalized as more transactions are made using credit and debit cards. Plus, a valid criticism of cash is that large denominations make money-laundering easier.
So with the drumbeat of digital payments growing louder and with cash both a carrier of COVID-19 and an accessory to crime, should we eliminate it altogether? The answer is no — at least, not until we can introduce a widely adopted alternative.
Cash is critical to our freedom for four reasons. First, it is resilient; it does not rely on private banks and payment networks to function. Second, we don’t need permission, birth certificates or other pieces of technology to use it. Third, we can use it anonymously to purchase goods and services. Finally, lower income people sometimes have a hard time getting a bank account or a credit card, so cash is their only option.
It is therefore foundational to our privacy and independence in the economy. For example, it protects the identities of women who want to buy contraceptives in communities that condemn birth control or sex outside marriage, and it allows us to buy goods and services without turning over our personal data to non-transparent organizations. Jerry Brito, executive director of Coin Center, a U.S.-based think-tank focused on issues related to cryptocurrencies, has it right: “A cashless economy is a surveillance economy.”
Recent moves in China certainly fit this pattern. China’s plans to create a “central bank digital currency” are motivated not only by the desire for a more efficient financial system but also by the government’s wish to monitor how every yuan is spent.
We should not abolish cash before we have a resilient, convenient and anonymous alternative — ideally, one that is global in scope. While initiatives such as Libra, Facebook’s digital currency project, could make payments easier, especially for the world’s unbanked, they are not substitutes for cash: they’ll ultimately be governed by the private corporations that back them.
There are, however, two ways to replace cash with something better. The first, Bitcoin, is a good place to start. Bitcoin already acts as a type of digital cash, as it’s a decentralized, peer-to-peer payment system open to anyone with internet access. Just as cellular technology allowed billions of people to leapfrog landlines, Bitcoin could leapfrog legacy financial institutions.
Bitcoin is not a panacea though. It is not yet widely held; it’s still not all that intuitive to use; and it’s volatile. So while we can encourage Bitcoin where it is accepted, we need to explore other options, as well.
Central bank digital currencies that replicate the anonymous, peer-to-peer attributes of cash are an emerging alternative. But they have two problems. First, governments would be reluctant to build something they can’t control and oversee. Indeed, the Bank of Canada highlighted government surveillance as a key reason for exploring its own digital loonie last year. Second, for a central bank digital currency to work like cash and be fully anonymous, private and irreversible, it must also be decentralized, which seems an unlikely venture for a centralized bank.
Perhaps the answer is a global alternative that combines attributes of Bitcoin with those of traditional government currencies. Last year, Mark Carney, governor of the Bank of England, suggested replacing the U.S. dollar as the world’s reserve currency with a synthetic global currency backed by a basket of government-issued digital currencies. Carney’s speech was aspirational in tone and vague on details but provided an intriguing starting point. In theory, “decentralizing” the governance of such a supranational currency across different nation-states would prevent any single government from controlling it or any single authority from surveilling how it’s used.
There are at least two implementation challenges to this idea, however. First, we must balance the need for governments to fight organized crime against the need for individuals to exercise economic privacy through a digital cash equivalent. Second, central banks must co-ordinate to develop a system that is resilient and easy to use, even for those without identity cards or digital devices.
Yet if cash becomes increasingly marginalized or stigmatized in our economy, these are challenges we need to overcome. The alternative is a world in which powerful private companies and governments know how you earn and spend every dollar. This would be disastrous for human rights. Privacy and economic inclusion are foundational to freedom.
Alex Tapscott is co-founder of the Blockchain Research Institute and editor of the new book, Financial Services Revolution: How Blockchain is Transforming Money, Markets and Banking.
