Will money disappear?


Not that long time ago physical money was the only means of payment. Now people in numerous developed countries might have hard time remembering when they saw cash last time.

Digital money transfer development skyrocketed in the last decade. It all started with bank accounts and money transfer being quite complex and expensive, but that developed quite well diminishing transaction costs. But the role of the cash was still huge, since you needed to deposit physical money on your account before being able to send it somewhere.

When transactions from card to card were introduced, it became even more convenient. Than we got e-wallets, cryptocurrencies, possibility to send money through the messenger or even get a loan there! Seems like money really goes digital and one day we possibly will not need to cash out at all and physical money per se will become obsolete.

Maybe this post should have started with question “WHEN will money disappear?”, instead of “WILL money disappear”? Well, it is not that clear yet.

Although digital forms of payments are really at their rise now, surprisingly enough, amount of currency in circulation actually increases at a quite impressive speed. The amount of US dollars in circulations gas risen by 42% in last 5 years. So, why do we still need cash?

There are two main reasons. First, it is exceptionally convenient medium of exchange. It is easy to carry, it is widely accepted, easy to divide for transactions of different sizes. It is very stable and can be used under almost any circumstances (when digital means of payment would fail, e.g. computer collapse, power outrage, etc.). Second, and probably the most important one – cash is anonymous, put in other words — untraceable. And now it seems there is simply no alternative digital payment system that would carry these two characteristics. Bitcoin is anonymous, but extremely unstable and volatile, all other means – from credit cards to peer-to-peer payment systems – are easily traceable.

There is also very interesting irrational psychological factor – people tend to perceive cash money as more “their”, like they own it “more” than digital money. Research reveals that people feel less negative about white-collar crimes that stealing physical things.

We have a reason for this irrational feeling – after all, in one form or another, cash was with us for hundreds and thousands of years. The future of digital vs. cash fight is still unclear and definitely depends of ability to find perfect digital substitute for cash, which is extremely challenging task.

Sources:

http://www.wsj.com/articles/tencent-to-add-personal-loan-feature-to-wechat-app-1441952556

http://www.dailymail.co.uk/sciencetech/article-3145793/Facebook-Messenger-rolls-payment-service-Users-send-cash-friends-messaging-app.html

http://www.bbc.com/future/story/20150724-the-truth-about-the-death-of-cash

http://www.frbsf.org/files/2012_Annual_Report_Essay.pdf

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