What's next: E-cash?

The Future of Money
Page 64 

When the euro became legal tender at midnight on 31 December, line-ups for cash immediately formed not at the shut doors of European banks, but at the electronic tellers, the ATMs. The new currency virtually eased into circulation, fuelling the prediction this report spells out, that money’s destiny is to become digital.

Much of the initial enthusiasm about cybercash focused on the exciting technological toys that make it possible, including electronic purses and smart cards, in which simple digital memory is deposited as value onto devices such as handheld computers, mobile phones and watches. But current discussions of electronic money pose the harder questions. What regulatory mechanisms are required for transfers and e-commerce? Are there reliable ways for security to be assured but not abused? How does this new economy of intangibles trickle down to the “unwired”?

Governments are leaning toward dematerialising money if for no other reason than to economise. Cash doesn’t come cheap. Singapore, which is planning an “electronic legal tender” society for 2008, spends US$359 million per year to process, store and protect its paper currency; the cost of installing the necessary electronic infrastructure will be barely half that, around US$197 million.

On the downside, there are the standard challenges posed by counterfeiting, money laundering and tax evasion, but of a different dimension. Could a counterfeiter mint unlimited amounts of e-bucks? Could money stored on a PC be lost forever if the system crashes?

Banks are eager to push the process forward, but may risk being nudged out by private companies attempting to create their own niche in the financial sector. The OECD says that no matter how much payment technologies change, the historical process of centralisation will also apply to electronic money. While there is a good chance that certain sources for issuing private money, such as Microsoft or even Bill Gates, will remain richer and more stable than many sovereign issuers, there is little reason to expect that “Softs” or “Bills” will offer much competitive advantage when compared to the dollar, euro or yen.

Because in the end, money is only a unit of value, and that value relies on the development of forms of trust. Whether this faith is invested in private enterprise or central banks, the question is, will it be in digital we trust?

The Furture of Money, OECD, 2002. 

©OECD Observer No 231/232, May 2002 




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