In recent years there have been talks of central bank digital currency replacing paper currency, with various governments around the world implementing programs and initiatives designed to get their citizens to go digital, but how likely is digital money to replace physical? Is it inevitable or just hype?

The Declining Use of Cash

Experts often point out that cash usage has fallen over the last two decades, and some see this is a sign that people prefer using digital currency and that cash will soon be obsolete. However, it is more likely that the declining use of cash is the result of having access to more purchase options including online payment systems.

The biggest weakness of physical cash is that it cannot be used to buy things online; to make purchases over the web you must have access to some form of digital payment system, whether it is a credit card, online bank account or crypto currency. Therefore, the wide adoption of the internet worldwide and ecommerce is one of the primary reasons why digital cash has become so popular. It doesn’t mean that people no longer want to use cash; it just means that more people shopping online means less cash usage because more people are buying goods over the web rather than in physical stores.

The Disadvantages of Digital Currency

Just as physical cash cannot be used to buy digital goods; digital cash cannot be used to purchase or barter for physical goods in the real world, because it doesn’t technically exist. Anyone who has traveled to developing countries or purchased goods from a street vendor in a developed country knows that most still want cash or coins. For example, who wants to use digital currency to buy a hot dog from a street vendor in New York City?

Cash and coins are simple and convenient to use. They require no special equipment or access to a network. And most important of all, the transactions are completely private. The only parties that need to know about it are the seller and buyer. There are concerns that governments around the world are trying to get their citizens to go digital so they can track, trace and tax every single transaction. Given the horrific track record of governments and tyrannical regimes around the world oppressing their populations throughout history, such a scenario should concern everyone.

There are other problems with digital currency, however. It depends completely on the internet and have accessing to electricity, which will be the first things to disappear in a real disaster, whether it be a hurricane, earthquake, tornado, super volcano, tsunami, asteroid impact, viral outbreak or manmade terror or cyber-attack. In such scenarios, having access to physical money will be vital.

What Will Most Likely Happen?

While no one knows the future, it is safe to say that some form of physical money will remain in use indefinitely, and will be used alongside digital cash. Both have their advantages and complement each other quite well. While there are certainly governments and regimes around the world that will love to force their citizens to only use digital money, it is most likely a pipe dream, as people can always barter or trade with jewelry or other goods even if physical cash disappears.