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Central banks are the powerhouse of any economy. But what will happen once cash becomes non-existent? Will their power remain the same? Are central banks needed as issuers of a means of payment in a modern digital payments market?
A cashless society describes a society in which purchase of goods and services are made by credit card or electronic funds transfers rather than cash or check. Given that the role of a central bank is to manage the money supply, these developments potentially have wide ranging consequences.
As important as having money is, in modern times it has become equally important to have means by which money could be transferred instantly and in real time. Swift electronic payments have become crucial. In recent years, the majority of central banks started considering the idea of introducing a new type of currency, issued in digital form rather than paper. Known as central bank digital currency or CBDC, such digital currency would effectively have the status of legal tender, only it would be issued purely on a ledger technology and no 'paper' representation of such CBDC would exist.
Adoption of digital assets, crypto currencies as well as CBDC if integrated intelligently will certainly fuel the digital economy creating a new standard of exchange. This, however, needs to be based on trust and any trade-offs would need to be well assessed, essential, non discriminatory, transparent and proportionate for a cashless society to be the backbone of the future digital economy.
Overall cashless societies are impacting the central bank. There are many pros such as better living standards in the society. This could be like fewer crimes, easier currency exchange, etc, but there are cons as well. Hackers can drain your account. It would be harder to control money because physical cash is leaving their hands. However, if central banks are able to successfully regulate and maintain CBDC, they may withhold their power, even in a cashless society.
By:Praneel
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