September 11, 2016
There are many that profess the path of evolution from cash to cashless is through cash-replacement. Then there are those who knowingly or unknowingly confuse cash-replacement with cashless. The main reason for establishing this critical point of divergence is to establish the understanding that cashless is better evolved from cash, rather than from cash-replacement.
Cash, whether it is a store-of-value constrained by its composition, or means-of-exchange largely limited by fiat, or whether it is real or virtual, is the key enabler of all commerce and transactions worldwide, and hence – directly or indirectly – influences all socioeconomic outcomes. Hence, the evolution of cash to cashless should be of paramount importance to everyone, not just technocrats or economists.
If we truly want to evolve to a cashless society, a truly cashless society where acceptance is ubiquitous and there is no loss of value during the exchange, the only way is to evolve from cash. Given that cash is a state-backed utility – and for good reason – the only way we can achieve this is for all central banks around the world to start issuing their respective currencies in bits and bytes. If they build it, the rest will come; if central banks start issuing currencies in bits and bytes, the rest of the acceptance and settlement infrastructure will also evolve accordingly.
We are somewhat trivializing the complexity involved in achieving this, and yes, this is easier said than done. But as I always like to add to the adage, someone still needs to say it. We now have application programming interfaces or APIs for just about everything. If cash-replacement providers can offer APIs for accepting payments, why cannot our central banks offer APIs for issuing and settling cash?
We have enough imitators out there claiming to be ushering in the golden era of cashless; when will the real 'Slim Shady' stand up?
Over centuries, human society has progressively evolved with respect to how it deals with storing value as well as enabling exchanges, starting with cowry shells back in 3000 BC all the way up to the current fascination with bitcoin. Hence by extrapolation, if the bitcoin is an evolution from cowry shells, can we speculate what a cashless society would look like 5000 years from now?
While 5000 years may be too far out, a more reasonable exercise, clearly, would be to envision what a cashless society looks like 50 years from now. And then work backward from there.
It is the definition of this roadmap for the next 50 years that warrants an understanding of the points of convergence and divergence between cash, cash-replacement and cashless.
This is why the guiding principle we established earlier that cash has always been and will always be a state-backed utility is important.
This is why a clear understanding of the difference between cash and cash-replacement is important, and the fact that cash-replacement’s evolution into a Trojan Horse is not a conspiracy but a function of the market.
To evolve a roadmap for a cashless society, we need to start connecting the dots, and along the way, establish guiding principles rather than definitive solutions as there are more ways than one to skin the proverbial cat.
Check out Mehul Desai’s August of Money.