Digital money might be coming, but should cash go away? New bill addresses issue
(TND) — A senator from Oklahoma wants to make sure the U.S. dollar, in its physical form, doesn't go away in this increasingly digital world.
Sen. James Lankford, a Republican, introduced the No Digital Dollar Act, which would require the U.S. Treasury to keep printing and coining money if the government issues an official digital currency.
Lankford said digital dollars carry privacy and security concerns.
While some Oklahomans are open to digital currencies, many still prefer hard currency or at least the option of hard currency,” Lankford said in a news release. “There are still questions, cyber concerns, and security risks for digital money. There is no reason we can’t continue to have paper and digital money in our nation and allow the American people to decide how to carry and spend their own money. As technology advances, Americans should not have to worry about every transaction in their financial life being tracked or their money being deleted.”
Experts in financial markets and digital currency say a central bank digital currency is likely to become a reality, and they generally think the government will be able to address privacy and security concerns.
The experts do differ in their opinions on how vital a digital transformation is and on how quickly the U.S. would abandon physical money.
“The question’s basically, ‘Are they ever going to eliminate the dollar?’” said Bryan Routledge, an associate professor of finance at Carnegie Mellon University. “Doesn’t seem likely, but it’s not really a big deal.”
It’s not a big deal, he said, because so much of what we do financially is already digital. Think about the credit card transactions or PayPal transactions recently made.
Routledge noted it’s all just “entries in a ledger.”
Many people have already stopped carrying cash, though there are still billions of Federal Reserve notes printed every year.
Dr. Merav Ozair, a blockchain expert, said she stopped carrying cash years ago.
Even the banks, whatever you have in your account, it’s all digital,” she said.
Ozair said there are digital currency pilot projects underway both domestically and internationally, and she expects the transition could happen soon.
“It’s coming,” Ozair said. “I mean, five years probably. I mean, I would like to stay optimistic, and I will say within three to five years we might start seeing maybe some testing, you know, happening, especially because the European and the U.K. are already doing something in that space and they are being more ahead of the curve than the U.S., so the U.S. will have to catch up.”
Christian Catalini, a founder of the MIT Cryptoeconomics Lab, also gave the three-to-five-year timeframe for the possible introduction of central bank digital currency.
While Ozair said paper money wouldn’t be needed long after the introduction of digital currency – “I don’t know if you need it, at the end of the day,” she said. – Catalini expects a long period of overlap.
Leonard Kostovetsky, an associate professor of finance at Baruch College, went a step further, saying paper money isn’t going away “in our lifetimes.”
I find it extremely unlikely that the government stops creating physical currency in this century,” he said via email.
The experts said a transition to digital currency might make the most impact for people who don’t have the financial means to take part in the banking system now. These are folks without a checking account, for example.
Routledge said that may ultimately be the real value of a central bank digital currency.
And Catalini said a digital currency could offer “cheaper, better access to payments and financial services.”
The government could also use digital currency to get benefits like food stamps to people quicker.
Catalini also said businesses could see a break from fees if digital currency takes the place of some credit card transactions.
Catalini said systems for using digital money would need to be worked out for when people don’t have internet access or power, or in the event of a natural disaster. Essentially, there has to be a solution for the system to work in an offline environment.
Ozair said privacy concerns of digital currency could be dealt with, citing evolving encryption technology.
And Routledge said the privacy benefits of cash are a bit overstated, noting regulations intended to tamp down illegal activity.
“For example, if you walk to the bank with $10,000 in your hand and try to deposit it, there’s extra forms that get filled out, specifically to try to identify issues of money laundering or illicit activity,” he said. “It’s not like cash is completely anonymous.”
Kostovetsky likened the privacy concerns of digital money to the skepticism about a national ID.
“Cash is more anonymous, it’s not perfectly anonymous,” Routledge said. “And digital currency seems less anonymous, but its degree of anonymity is like a design choice.”
Ozair said she’s confident any security concerns would be worked out before widespread rollout.
Security could be a concern, Kostovetsky said.
“Still, in spite of any security concerns, most Americans do hold their savings electronically in banks or brokerage accounts, not in cash under their mattress, and pay through credit cards, not in cash, so it’s probably not seen as a huge risk for most of us,” he added.
Routledge said all money – digital and physical – comes with security concerns. That’s nothing new, and nothing that can’t be solved, he said.
“I remember my mom sewing extra buttons into my dad’s suits when he was about to travel to New York City for the first time, because, you know, you’re going to get your pocket picked,” he said. “You know, don’t carry too much cash.”
