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

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Cash is censorship resistant. It’s the only payment mechanism where you don’t need anyone’s authorization to spend. Will we miss it once it’s gone?

This question is pressing as we rapidly move into the digital realm. Governments are considering introducing central bank digital currency (CBDC), and how these physical cash equivalents work exactly is being decided right now.

Governments and central banks need to answer the following: If physical cash falls to an inappropriate level – looking for a possible route – then this means our historic right to do so. Will payments that cannot be observed or censored by the state die on the same day?

The decline of cash at the retail level

ATM withdrawal still standing at 30-40% lower than they were before COVID. Many are questioning whether this drop in cash for retail purposes means the need to launch a digital equivalent. However, the exact characteristics that a CBDC would have are political questions, not economic or technologically dry questions.

This is because it is not entirely clear that a CBDC are not has real cash-like features that will solve any real unmet need of the consumer. So we risk the worst of all worlds: building new CBDC systems that are expensive but not accepted by consumers. We will also risk a public backlash when citizens realize that a huge amount of their money has been spent on initiatives to accelerate the end of their historic right to pay someone they choose without asking for permission.

In countries without mature payments infrastructure, the CBDC case is easy to make, with or without a political edge. However, the reality is that electronic payments in most of Europe and the UK work really well. Touching your card and paying is so easy that you might wonder what remains to be done. However, what is often overlooked about the architecture of the payment card network is that every payment involves “authorization”: whenever you tap there is an opportunity for your bank to say ““ are not”. Cards alone do not offer all the same features as cash; you never have to worry that your cash payment “will not go through”.

Indeed, since humans transacted with each other, people have been able to engage in direct commerce without the need for third-party permission. If cash disappears, sure anything else need to be replaced. We would be sorry to lose the unique attributes that cash, and no other payment method, has provided us with. We probably regret not pushing harder today to ensure that the digital alternative of cash is truly cash-like, with all the good – and bad – that entails.

After all, the ability to hold cash and spend it without authorization is not just a source of personal freedom and privacy; It is also the cause of crime and terrorism. So it’s natural for policymakers to see the demise of cash as an opportunity to fend off the dark side. However, it would be a historical tragedy if by doing so we also extinguish all that is good.

In short, we need an informed debate, sooner rather than later, about the right balance between freedom and law enforcement. Who should be allowed to spend money without permission? How much should they be allowed to trade or withhold? Where and in what Can such digital currency be used?

Convenience versus privacy

A fair response to my argument is to say, “If consumers appreciate the unique nature of cash so much, they have a humorous way of expressing it!” Indeed, one lesson that technologists learn – often to their dismay – is that what consumers Speak what they want and what they do then are two completely different things. In this case, what consumers doing are choosing the convenience of electronic payments over the privacy and freedom of physical payments.

However, as cards are so easy to use and cash becomes increasingly cumbersome, is it safe to apply this rule of thumb and conclude that consumers won’t complain once secrecy is delivered? Their translation is no longer available? In a world where nothing seems private and with growing concerns about data privacy, it seems safer to assume that consumers will continue to expect the ability to pay for certain items or services without feeling like they’re being watched. So it seems reasonable to emphasize that a form of digital cash has this property.

Collaboration between the public and private sectors is key

Instinctively, policymakers often fear a system that allows people to make certain payments without being traceable or intercepted. Indeed, some central banks have argued that they see CBDCs as a new currency, not a replacement for cash. However, if a CBDC does not have some element of this ability, my prediction is that it will fail. There would be no reason for consumers in mature economies to accept such a thing. So, whether CBDC is positioned as a new form of money or as an alternative to the oldest form of money – cash – it is still important to analyze through the same lens of consumer appeal. use.

If the private sector could provide a truly cash-like product on its own, we wouldn’t need this debate. The reality, however, is that the mainstream private sector alone cannot deliver this kind of financial privacy without the support and involvement of public policy. It is perhaps no surprise, then, that the only digital cash-like systems currently in operation are Bitcoin and the systems it inspires: operating entirely outside of government control and oversight, with no limits on how “censorship resistance” can be applied.

Thus, the irony is that it is possible that only by facilitating some degree of cash-likeness in the CBDC, with all that comes with it, governments and central banks retain their role. pivotal role when the final cash payment has been made.

A truly successful digital cash alternative requires cooperation between the private and public sectors. Fortunately, these relationships are strong and positive. For example, R3, like other companies, is addressing these issues and has been engaged in testing different CBDC delivery models. In the case of R3, the Corda enterprise blockchain is being used for many projects around the world, most recently Project Jura.

With all of this in mind, I believe we are at a point where the political, delicate question of “what should a real digital cash platform look like?” is rapidly becoming the decisive question for the future implementation of cash systems by entire countries.

Richard Gendal Brown is chief technology officer at R3.


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