Digital Currency

Digital Currency (def) digital currency (digital money, electronic money or electronic currency) is a type of currency available in digital form (in contrast to physical (fiat money, such as banknotes and coins). It exhibits properties similar to physical currencies, but can allow for instantaneous transactions and borderless transfer-of-ownership. Digital money can either be centralized, where there is a central point of control over the money supply, or decentralized, where the control over the money supply can come from various sources.

The world is growing increasingly digital. The financial market believes that the most impactful contribution from the invention of the smartphone is the applications that transform the device into a seamless wallet, remittance, and payments tool, granting financial inclusion and unprecedented convenience to billions of unbanked people around the world. While paper money has helped the world exchange value for goods and services for approximately the past millennium, is it time the money system updated itself to satisfy today’s needs? Some experts believe the case against cash is clear.

Crime
Cash is the preferred mode of payment for individuals and organisations conducting illicit activities. Cash provides an untraceable means to facilitate and fuel the criminal economy. No other payment mechanism simultaneously provides anonymity for payor and payee, leaves no trace of transactions, and is so widely accepted. Without physical cash, large-scale criminal activity would be much easier to detect: transactions will have to bypass bank accounts, which are traceable. They may even resort to a more troublesome form of barter trading.

Unsurprisingly, reducing dependence on cash can also alleviate the problem of street violence. Justice and Criminology Department at Georgia State University, conducted a study in the US on the correlation between cash and street violence. The study discovered a 10 percent fall in total crime rate in areas that have moved away from giving federal welfare benefits in cashable checks to preloaded debit cards.

Environment
It costs money to manufacture money. The penny, in particular, costs more to make than its actual worth. According to a study done by University of California - Davis, it costs the US Mint 1.43 cents to make a penny, even before accounting for the massive environmental impact created by mining, smelting, minting and transportation operations.

Tax Evasion
Cash enables the ‘hidden economy’. It’s not hard to see why, as it doesn’t leave a paper trail to be audited or tracked by taxation investigators. For example, when an employer pays a worker in cash under the table, both employer and employee do not pay employment benefits or income tax for the transaction. It isn’t surprising to see why workers in jobs paid primarily in cash — like waiting tables or private tutoring — tend to underreport their income.

Underreporting of income by individuals is the single largest contributor to the tax gap. Tax evasion costs the United States $200 billion every year, amounting to about 1 percent of the country’s GDP. Organisation for Economic Co-operation and Development (OECD), on average, lose about 2–3 percent of their total tax revenues every year, while lower-income countries tend to lose more: about 6–13 percent.

Government Backed Digital Curriencies Future
Tech companies specializing in mobile peer-to-peer payments have helped push the reality of a cashless society to the mainstream. Venmo by PayPal, Alipay by Ant Financial, WeChat Pay by Tencent, and Go-Pay by Go-Jek are some of the services offered by tech giants to enable cashless transactions for billions in three of the four most populous countries across the globe.

Governments are also taking steps to advance the cashless narrative. The Singaporean government, for example, aims to reduce cash transactions by supporting several digital payments initiatives. This includes a nation-wide electronic payments system — ‘PayNow’ — implemented by the Association of Banks in Singapore (ABS). Since the launch of PayNow, the transactional value of e-payments in the country has grown by more than S$10 billion a year, while ATM cash withdrawals have declined by more than S$300 million within the same timeframe.

The city-state is also experimenting with a central bank-issued SGD-equivalent digital currency built on distributed ledger technology — a project undertaken by the Monetary Authority of Singapore termed Project Ubin.

At a recent financial tech conference, International Monetary Fund Managing Director Christine Lagarde presented the argument for governments to issue digital currencies as a means to achieve public policy goals which private companies are less motivated to achieve. Having central banks issue digital currency can bring about financial inclusivity, better security, and consumer protection, as well as allay privacy concerns.