I just saw an interesting report produced and released by SIX Group that talks about the future of money. SIX Group run payments and settlement processing out of Switzerland and, unsurprisingly, their view is that the most likely future is that there will be digital everything but still some cash around. My own view is that cash, as with branches, will exist in a less future … less cash and less branches but not cashless and branchless. That’s my view anyway.
Here are their report’s key findings:
The report states that “what is considered money, what form it takes, how it is used, and what its infrastructure looks like, all look set to change dramatically in the near future”. It talks nicely about the role of money in society …
And then identifies seven future scenarios in the money infrastructure and service space.
Digital Rules — But Cash Persists in a Fragmented World
Digital payments have substantially increased in convenience compared to cash as digital user interfaces expand into ever more human activities. At the same time, cash continues to be perceived and widely used as a ‘store of value’.
Digital Currency Is the New Cash
Cash holdings drop 80%. Digital means have not only replaced cash as the dominant ‘means of payment’, digital money/assets have also largely displaced cash as a safe ‘store of value’.
Rise of the Central Bank Digital Currency
Anyone can hold digital currency issued by the central bank. People can choose where to hold their digital currency, at an account with the central bank and/or a commercial bank.
Central Banks Are Dead, Long Live Central Banks!
New centrally-issued currencies are the new money. New currencies and issuers replace sovereign currencies respectively states’ central banks (e.g., CHF and SNB, EURO and ECB).
A Cashless World Is Born
Cash disappears completely. The cashless society is finally born. A ‘digital cash’ infrastructure may take the place of the ‘physical cash’ infrastructure, which guarantees the same levels of security and anonymity/privacy as physical cash.
Moneyless Begins
There is no such thing as ‘money’ anymore. No asset in the economy — not even currencies — fulfills the conditions for it to be classified as ‘money’.
It’s a Bitcoin World
Decentralized digital currencies have become dominant: Crypto-currencies (e.g., Bitcoin, Ether) have replaced central-bank-issued currencies as the dominant forms of money.
Worth a read.
From all of the above, the most interesting aspect for me is that last scenario, a bitcoin world, which they say has low probability. Here’s their rationale …
For decentralized digital currencies to become dominant, several conditions must be fulfilled. We view the probability of all these conditions being jointly fulfilled to be low. The following will walk you through some of them.
First, people must lose trust that governments act in their interest. They may lose trust because they fear that their private property rights will not be upheld (fear of expropriation), and that their contractual rights will not be enforced. A private (centralized) company cannot take the place of the government: It will not be trustworthy because the government could simply nationalize the company; or if it isn’t already, the company might itself become untrustworthy in the future just as the government did.
Second, reliance on the jurisdiction of a trusted third party government must be impractical. If a third-party government is trustworthy, then a fully decentralized system may not be needed. People may, for example, have bank accounts in Switzerland to securely keep their (digital) assets outside of their government’s reach. People may use the US dollar or Swiss franc instead of their local currency as a medium of exchange.
Third, people must want to stay in the digital sphere. This may be because it allows them to deal with foreign service providers, or perhaps because it allows them to subscribe to and instantly consume a digital service such as Netflix. Or, it may simply be because it is more convenient to carry digital money than physical cash. If they don’t, then they may, for example, return to using precious metals such as gold as a medium of exchange and/or store of value.
Fourth, people must trust the code of permissionless distributed ledgers. Although distributed ledger technologies (DLTs) tend to be advocated as ‘trustless’, quite a bit of trust is still needed. People must trust that there are no bugs in the code, that the consensus protocol can scale, that the system remains decentralized, that the system is resilient against cyberattacks, that a fully open-source economic system can work, etc.
Fifth, governments must not be able to interfere with these ledgers and their execution. Governments might be able to overpower the consensus protocol or to prevent Internet access to the ledger (e.g., by monitoring/controlling Internet traffic). And even if they cannot interfere with the ledgers themselves, they may interfere with the execution of the rights and obligations included in crypto-assets: The execution of crypto-assets may not be automatic, but require a real-world person to take an action, and the execution may be linked to a non-digital asset such as a car or a piece of art. A government may thus be able to throw this person in jail, confiscate the car, or intercept the piece of art when it is shipped to its new owner.
In other words, for a bitcoin world to succeed, people would have to lose trust in governments and have trust in the internet. Yea, that sounds impossible, doesn’t it?
Related: McKinsey: Banks Are in a ‘Do-Or-Die’ Moment … Really?
And then identifies seven future scenarios in the money infrastructure and service space.
Digital Rules — But Cash Persists in a Fragmented World
Digital payments have substantially increased in convenience compared to cash as digital user interfaces expand into ever more human activities. At the same time, cash continues to be perceived and widely used as a ‘store of value’.
Digital Currency Is the New Cash
Cash holdings drop 80%. Digital means have not only replaced cash as the dominant ‘means of payment’, digital money/assets have also largely displaced cash as a safe ‘store of value’.
Rise of the Central Bank Digital Currency
Anyone can hold digital currency issued by the central bank. People can choose where to hold their digital currency, at an account with the central bank and/or a commercial bank.
Central Banks Are Dead, Long Live Central Banks!
New centrally-issued currencies are the new money. New currencies and issuers replace sovereign currencies respectively states’ central banks (e.g., CHF and SNB, EURO and ECB).
A Cashless World Is Born
Cash disappears completely. The cashless society is finally born. A ‘digital cash’ infrastructure may take the place of the ‘physical cash’ infrastructure, which guarantees the same levels of security and anonymity/privacy as physical cash.
Moneyless Begins
There is no such thing as ‘money’ anymore. No asset in the economy — not even currencies — fulfills the conditions for it to be classified as ‘money’.
It’s a Bitcoin World
Decentralized digital currencies have become dominant: Crypto-currencies (e.g., Bitcoin, Ether) have replaced central-bank-issued currencies as the dominant forms of money.
Worth a read.
From all of the above, the most interesting aspect for me is that last scenario, a bitcoin world, which they say has low probability. Here’s their rationale …
For decentralized digital currencies to become dominant, several conditions must be fulfilled. We view the probability of all these conditions being jointly fulfilled to be low. The following will walk you through some of them.
First, people must lose trust that governments act in their interest. They may lose trust because they fear that their private property rights will not be upheld (fear of expropriation), and that their contractual rights will not be enforced. A private (centralized) company cannot take the place of the government: It will not be trustworthy because the government could simply nationalize the company; or if it isn’t already, the company might itself become untrustworthy in the future just as the government did.
Second, reliance on the jurisdiction of a trusted third party government must be impractical. If a third-party government is trustworthy, then a fully decentralized system may not be needed. People may, for example, have bank accounts in Switzerland to securely keep their (digital) assets outside of their government’s reach. People may use the US dollar or Swiss franc instead of their local currency as a medium of exchange.
Third, people must want to stay in the digital sphere. This may be because it allows them to deal with foreign service providers, or perhaps because it allows them to subscribe to and instantly consume a digital service such as Netflix. Or, it may simply be because it is more convenient to carry digital money than physical cash. If they don’t, then they may, for example, return to using precious metals such as gold as a medium of exchange and/or store of value.
Fourth, people must trust the code of permissionless distributed ledgers. Although distributed ledger technologies (DLTs) tend to be advocated as ‘trustless’, quite a bit of trust is still needed. People must trust that there are no bugs in the code, that the consensus protocol can scale, that the system remains decentralized, that the system is resilient against cyberattacks, that a fully open-source economic system can work, etc.
Fifth, governments must not be able to interfere with these ledgers and their execution. Governments might be able to overpower the consensus protocol or to prevent Internet access to the ledger (e.g., by monitoring/controlling Internet traffic). And even if they cannot interfere with the ledgers themselves, they may interfere with the execution of the rights and obligations included in crypto-assets: The execution of crypto-assets may not be automatic, but require a real-world person to take an action, and the execution may be linked to a non-digital asset such as a car or a piece of art. A government may thus be able to throw this person in jail, confiscate the car, or intercept the piece of art when it is shipped to its new owner.
In other words, for a bitcoin world to succeed, people would have to lose trust in governments and have trust in the internet. Yea, that sounds impossible, doesn’t it?
Related: McKinsey: Banks Are in a ‘Do-Or-Die’ Moment … Really?