It’s no mystery that money has changed form and function many times over the course of human history. As the population has increased, some previously used units of exchange have become unfeasible. We’ve made money more and more abstract in the pursuit of convenience. Imagine carrying around kilograms of gold around the weekend farmers market, or trying to negotiate whether or not your cow was worth 50kg of carrots or 60kg. Our cash system is now so abstract that is referred to as ‘fiat money’ - it has value only because the government decrees it to be (i.e. legal tender).
Many countries have now made money even more abstract than the cash system that has dominated the past few centuries. Take Sweden for example; just 2% of their economy is represented by physical money. The rest is viewed as ‘guaranteed’ in the same way that a circle of people can sit on each other’s knees.
Now, with digital money becoming more prevalent than ever, it’s time to take a look at five ways digital money is changing our money today:
1. Abstract thinking will increase or debt will increase:
Many people who like having something tangible, or have problems quantifying abstract things will probably be more likely to spend irrationally in the future. Take a look our friend and foe - the credit card for example. New Zealanders currently have over $6.5 Billion of credit card debt. This has been accumulated from the generations that experienced the shift from cash to digital currency. Will the next generation, largely unexposed to the world of cash - even in Monopoly - be better equipped to manage money they can’t physically qualify? We’re banking on it.
2. An increase in transparency and security with some downsides:
There is a reason that governments have been increasingly pushing for a cashless society. It makes sense. By having a ‘paper trail’ (please appreciate the irony) for all electronic transactions made, we could expect lessened illegal trade/criminal activity, money laundering, and tax evasion - things cash is right now enabling. However, this will be partially coupled by an increase in ‘darknet’ trading (people anonymously transferring funds) which is a major reason people have a negative disposition toward Bitcoin and other new, non-governmental currencies.
3. Efficiency increases in the economy:
This one’s pretty straightforward. Imagine being a store owner who no longer has to contend with a cash till, Armourguard pickups, and giving back change. There is speculation that our cashless money will someday be able to be accessed by unique identifiers such as our fingerprints or iris.
4. Money can be programmed:
In the future, money can become conditional. A truly digital currency could one day be programmed to only be exchanged if the goods have arrived (hello Trademe security), and allow smart contracts that protect all parties involved in a transaction. This will allow for more transparency and maybe even less paperwork!
5. Helping the Poor Protect their money:
In many countries, banks are only accessible to the rich and powerful, and it is hard to protect funds - mobile digitalised payments will help them retain earnings. In Kenya, this is important. Estimates suggest that 60% or more of commerce there takes place using mobile phone credits as a medium of exchange. While the phone can be stolen, the money cannot be accessed, allowing for more money to be spent on trading and less on protecting.
It is clear to see the world will be a different place with the rise of digitised money. One of the main focuses of Banqer is to prepare the up and coming generation to handle the aspects of finance that are guaranteed to be a part of our future, and cope well in an ever shifting technological world.
Insights from Cam Richardson (Money-minded technologist, and Banqer Team Member)