On The Road to a 100% Digital Economy

Some fifty years ago we couldn’t have imagined the world without coins and paper money, but at different points in time the world has had (and will have) not been relying on them at all.


Money, in any of its forms, was invented before the beginning of written history, so there is no exact data on how it happened. What we know is that after the domestication of cattle and the start of cultivation of crops, around 9000–6000 BC, livestock and plant products were used as exchange objects. But there are societies that even today live solely by barter and trade. If you want to read more, here is an interesting article on the subject.


Jumping a few thousand years closer to nowadays, after the fall of the Western Roman Empire, coins, silver jewelry and hack-silver were the only form of money, until Venetian merchants started using silver bars for large transactions in the early Middle Ages.


As the world’s economy developed and silver supplies increased, coins became larger and a standard coin for international payments developed in the 15th century, the Spanish colonial silver coin of 8 reales, while its counterpart in gold was the Venetian ducat.


The next step, digital payments, was facilitated by the discovery of internet. Online payments began to operate in the 1990s, with the Stanford Federal Credit Union being the first to offer online banking services to all its customers, in 1994, the same year Amazon was founded. The first major players in the digital payment market were Millicent and Ecash, founded in 1995 and 1996 respectively, but eBay and PayPal moved the needle significantly towards faster and safer online payments, towards what we know and use today.


To understand how big the digital payments have become, compared to the use of cash, 2017 was the first year when debit card payments overtook the number of those made by cash in UK. According to UK Finance, there were 13.2 billion debit card payments, eclipsing the 13.1 billion payments made in cash and the tipping point occurred in the final quarter of 2017, a few months earlier than it had previously forecast.

Here is a graph showing the most popular payment methods for everyday transactions according to internet users worldwide as of September 2017. As you can see, in-store still accounts for the single largest share of everyday transactions with 40 percent, but digital, as a whole, accounts for 60 percent of consumer payment transactions.

Another good example is Sweden, the first country in Europe to introduce banknotes in 1661. They will also be the first to introduce its own digital currency in 2021, on the road to becoming the first cashless nation in the world, with an economy that goes 100% digital, in 2023.


And since we talk about a digital economy, here is a forecast of the next-generation payment technology market worldwide, from 2015 to 2022, including EMV chip, QR code and NFC/contactless payment systems. And while the NFC segment is currently growing at the highest rate, due to its adoption in mobile handsets and wearables, EMV chips, named after its developers, Europay, MasterCard and Visa, are expected to dominate the market by 2022.

If moving towards a digital economy is inevitable, let’s see, at least, the upsides and downsides of living in one. First of all, while physical money is anonymous and untraceable and can be easily used for bribery, tax evasion, counterfeiting, corruption and terrorist financing, digital payments leave traceable records and can be subject of fraud-preventing technologies.


Even more, digital currency creates the opportunity for alternate currencies, such as hyper-local currencies that encourage spending in local economies. One example would be TEM, in Greece, a currency that is only accepted in the city of Volos, serving to stimulate the local economy and for which no person is allowed to hold more than 1200 TEMs, or owe more than 300, meaning it can’t be hoarded like regular cash.


Digital money could also allow us to control how, where and when we spend a lot better. For example, we could set rules that will only allow us to spend a certain amount on clothing, alcohol or unhealthy food.


While Sweden might be prepared to go 100% digital in 2023, for many more countries there’s the risk of marginalizing the people without bank accounts and leaving them without support. In Romania, for example, the internet penetration is just at 58% at the moment. What would the other 42% of people do?


Another big concern is that as payments move online, there’s an increased risk of crimes as account takeover, identity theft, fraudulent transactions and data breaches. And while the rich may be in a better position to pay for advanced privacy, the average consumer, with a traditional bank account, would receive no anonymity.


In case neither cash, not digital money appeal to you, there could still be another choice. That’s what futurist Jacque Fresco, creator of The Venus Project, has been saying for the last 40+ years. Arguing that we are only as free as our purchasing power, Fresco advocates for an entirely different social system, one emphasising actual human needs rather than the satisfaction of economic ones. In case you want to read more, here is their website. Or, if you prefer video content, here’s a great documentary on the subject.

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