Central banks are being urged to consider switching to primarily digital currencies, in keeping with the increasing amount of non-cash payments made via contactless bank cards and apps, such as Apple Pay and Google Pay, as well as the prevalence of online banking.
Christine Lagarde, chair of the International Monetary Fund, was speaking in Singapore last Wednesday at the Fintech Festival, in which she advocated the switch for some central banks.
In her speech, Lagarde said: “I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy.
“This currency could satisfy public policy goals, such as financial inclusion, and security and consumer protection; and to provide what the private sector cannot: privacy in payments.
“The advantage is clear. Your payment would be immediate, safe, cheap, and potentially semi-anonymous. As you wanted. And central banks would retain a sure footing in payments. In addition, they would offer a more level playing field for competition, and a platform for innovation. Meanwhile your bank, or fellow entrepreneurs, would have ensured a friendly user experience based on the latest technologies.”
Figures from UK Finance show that in 2006 62% of all payments were cash, but by 2016 this was down to 40%. The forecast for the decade until 2026 is a continued decrease to 21%.
Claire Tyler, Baroness of Enfield. Photo courtesy of the Lib Dems official website.
The concern for some groups is financial exclusion of the elderly, those with special needs, and the poorest in society, who may not have adequate internet access or the capacity to bank without cash. Age UK have already warned that cash is still an important method of payment for some, while the Liberal Democrat peer Baroness Tyler of Enfield echoed these sentiments in her position as chair of the House of Lords select committee specifically dealing with financial exclusion.
The IMF research paper is not as confident as Lagarde, suggesting that while the CBDC (central bank digital currencies) could improve financial inclusion and lessen risks, it would be lacking in demand at first and, being digital, is at risk of cyber attacks.
Cryptocurrencies have notoriously been at the heart of new technology, utilising the blockchain system of information retention, but cyber attacks have seen millions if not billions of credit and tokens stolen. Both Lagarde and Mark Carney, chair of the Bank of England, have expressed their unease with cryptos, with Lagarde dubbing them a "major new vehicle for money laundering and the financing of terrorism". True anonymity in the likes of Monero allows a black-market community to operate, and the IMF wants to bring the blockchain technology into central banking to offer a more legitimate, non-privatised way of operating digitally.