The Future of Digital Currency: Transitioning from Physical Cash to Central Bank Digital Currency (CBDC)

As the world moves towards digitalization, the concept of digital currency is facing a transformative shift. This article explores whether digital currency is poised to supplant traditional printing currency or if it will co-exist and even enhance its functionality.

Understanding Digital Currency and Central Bank Digital Currency (CBDC)

What most people refer to as 'digital currency' can sometimes be termed 'commercial bank money,' which essentially represents the debts assumed by commercial banks. In contrast, 'sovereign currency' or 'central bank money' encompasses banknotes and coins. However, modern advancements are introducing a new entity termed 'sovereign electronic currency,' specifically 'central bank digital currency' (CBDC).

A CBDC is an electronic currency provided by a central bank, designed to give the public direct access to the central bank's digital form of money. Unlike commercial bank money, CBDCs are not created based on the debts of commercial banks but are instead a direct liability of the central bank, providing a more secure and decentralized form of money. Currently, many central banks, including Sweden, are investigating and pushing forward with the development of a CBDC. Sweden's e-krona, for instance, aims to parallel the krona's value both in physical and digital form.

Will CBDC Replace Traditional Printing Currency?

The question of whether CBDC will eclipse traditional physical currency is complex and multifaceted. Sweden, for example, intends for the e-krona to circulate in similar quantities as physical krona, and no CBDC has actually been issued yet. While it might seem that CBDCs will soon become the primary form of currency, the current situation remains largely uncertain. There are several factors at play, including technological limitations, public trust, and the ongoing reliance on traditional cash.

Challenges and Concerns

One significant concern is the potential for digital currencies to replace cash, which has become a primary means of transferring the coronavirus. This could lead to a future where digital currencies, such as CBDCs, are more prominently used. In small countries like Iceland, Norway, Sweden, and Denmark, the production of modern banknotes and coins is often outsourced to private companies in larger nations like Britain, France, and Finland. This centralization may lead to increased scrutiny and potential for misuse of currency production.

CBDCs might face the challenge of delivering the same tactile and visible forms of currency. The transition from physical to digital currency may require the use of images of banknotes on smartphones to convey a sense of authenticity and sovereignty, emphasizing the distinction between CBDCs and commercial bank money.

The Deeper Implications of Digital Currency

Underlying the discussion about digital currency is a critical view on the nature of money itself. Traditional printing currency is a representation of borrowing from your existing debt, creating a bond that generates more money to support the bond. Even digital currencies like cryptocurrencies are merely numbers on a screen, lacking a tangible backing.

In the U.S., debt levels directly correlate to the amount of money in circulation. Trillions in debt signify trillions in circulating cash. Instead of relying on debt, it's recommended to consider assets like gold as a store of value. The core issue revolves around the manipulation of monetary systems and the potential misuse of such power for political or economic gain.

Conclusion

The shift towards digital currency is inevitable, but the path of transition remains uncertain. While CBDCs offer a more secure and decentralized form of money, traditional printing currency still holds significant advantages. As we move forward, the role of central banks and government entities in managing and overseeing these changes will be crucial.