khaleej times
| ADVERTISING SUPPLEMENT
| SUNday, APRIL 30, 2017
Paper money may soon become obsolete Benefits of digital currency far outweighs traditional cash
C
ash had a pretty good run for 4,000 years or so. But notes and coins increasingly seem declasse these days: they are considered dirty and dangerous, unwieldy and expensive, antiquated and very analogue. Sensing this dissatisfaction, entrepreneurs have introduced hundreds of digital currencies in the past few years, of which bitcoin is among the famous. Now governments want in: The People’s Bank of China says it intends to issue a digital currency of its own. Central banks in Ecuador, the Philippines, the U.K. and Canada are mulling similar ideas. At least one company has sprung up to help them along.
Much depends on the details, of course. But this is a welcome trend. In theory, digital legal tender could combine the inventiveness of private virtual currencies with the stability of a government mint. Most obviously, such a system would make moving money easier. Properly designed, a digital fiat currency could move seamlessly across otherwise incompatible payment networks, making transactions faster and cheaper. It would be of particular use to the poor, who could pay bills or accept payments online without the need of a bank account, or make remittances without getting gouged. For governments and their taxpayers, potential advantages abound. Issuing digital currency would be cheaper than printing bills and minting coins. It could improve statistical indicators, such as inflation and gross domestic product. Traceable transactions could help inhibit terrorist financing, money laundering, fraud, tax evasion and corruption. The most far-reaching effect might be on monetary policy. For much of the past decade, central banks in the rich world have been hampered by what economists call the zero lower bound, or the inability to impose significantly negative interest rates. Persistent low demand and high unemployment may sometimes require interest rates to be pushed below zero — but why keep money in a deposit whose value keeps shrinking when you can hold cash instead? With rates near zero, that
conundrum has led policy makers to novel and unpredictable methods of stimulating the economy, such as largescale bond-buying. A digital legal tender could resolve this problem. Suppose the central bank charged the banks that deal with it a fee for accepting paper currency. In that way, it could set an exchange rate between electronic and paper money — and by raising the fee, it would cause paper money to depreciate against the electronic standard. This would eliminate the incentive to hold cash rather than digital money, allowing the central bank to push the interest rate below zero
Transition to a digital future Set for imminent launch, the Emirates Digital Wallet initiative will mark a major milestone in the UAE’s journey towards a cashless future
T
he UAE Banks Federation (UBF) recently announced that the establishment of Emirates Digital Wallet LLC, a company owned by 16 shareholding banks and fully sponsored by UBF, has reached its final development stage. The launch of Emirates Digital Wallet, previously Mobile Wallet
project, is set to introduce a society-wide cash transformation to digital, and mark a major milestone in the country’s push towards a cashless future. Initiated by UBF in 2014, the first-of-its-kind project is fully supported by the country’s banking sector, and will be regulated and supervised by the Central Bank of the UAE. The project has been developed and implemented under the aegis of UBF by a special committee representing the 16 partner banks that hold equity stakes in the entity. “Our objective, since the initiation of this project and subsequently moving from blueprint to implementation, is for banks to establish a dedicated entity and take direct responsibility for expediting the process of digital transformation in the UAE,” said Abdulaziz Al Ghurair, Chairman of the UAE Banks Federation. “We are proud that this initiative, a true milestone for UBF and an essential building block of the UAE’s Smart Government initiative, is completing its pre-launch stage in coordination with the Central Bank of the UAE. We are eagerly looking ahead to the industrywide implementation of this massive project in the months to come. We are very confident that the company will add a major boost to the country’s push towards a digital economy. “The significance is that the entire banking sector of a country is joining forces to create a dedicated entity for the benefit of all citizens, residents and visitors. Adopting such an inclusive and representative approach towards building a digital payments ecosystem will ensure that the maximum number of people will be able to participate in and benefit from this breakthrough initiative,” Al Ghurair added. From his side, Mubarak Rashed Al Mansoori, Governor of Central Bank of the UAE, commented: “As a step forward in the right direction, the successful development of this major initiative reflects the strength of the collaboration done between all parties on industry level, and their shared vision to drive the UAE’s cashless vision and digital evolution to all UAE citizens and expats, while also promoting greater financial inclusion.”
and thereby boost consumption and investment. It would be a big step toward doing without cash altogether. Digital legal tender isn’t without risk. A policy that drives down the value of paper money would meet political resistance and — to put it mildly — would require some explaining. It could hold back private innovation in digital currencies. Security will be an abiding concern. Noncash payments also tend to exacerbate the human propensity to overspend. And you don’t have to be paranoid to worry about anyone tracking your financial life. Governments must be alert to these
problems — because the key to getting people to adopt such a system is trust. A rule that a person’s transaction history could be accessed only with a court order, for instance, might alleviate privacy concerns. Harmonising international regulations could encourage companies to keep experimenting. And an effective campaign to explain the new tender would be indispensable. If policy makers are wise and attend to all that, they just might convince the public of a surprising truth about cash: They’re better off without it. — Bloomberg