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Will money become entirely virtual?

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Will money become entirely virtual?

Alex Helling's picture
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We all know that the value of money is largely based upon our trust in it. Everyone believes it is worth the amount it says it is so it can be used as a medium of exchange, it such a widely accepted concept that practically no one ever questions it. The paper money we now use revolutionised the economy when it was introduced (In Europe during the 17th century, though it was around from the end of the first millennium in China) however now it is getting old. Until relatively recently it was backed by something physical; gold. Gold itself however only came to be used as a currency because it looks good and has little other use - it is too soft for any practical use so becomes decorative. However countries have moved away from the idea that they need to have enough gold in the vaults of the central bank to be able to pay for all the bank notes in circulation, the promise to pay on bank notes is now largely fiction. So if the value of money is largely based upon a collective decision to trust a piece of paper then it makes sense that we are increasingly moving to the next stage and trusting entirely in numbers. It is increasingly possible to never use cash as we never see the physical money in our bank accounts and payments are increasingly done electronically. Cheques are already a victim of the convenience of electronic money and are being phased out, could cash be next? Could there be a switch to entirely virtual currencies such as bitcoin?
http://www.foreignpolicy.com/articles/2011/06/23/the_wikileaks_of_money?page=full
http://www.cbc.ca/news/business/story/2012/04/12/technology-mintchip-digital-penny-payment.html
http://www.investopedia.com/articles/basics/03/061303.asp#axzz1ruHrPLfA

2 years 32 weeks ago
James Laurenson's picture
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The problem with moving to an entirely electronic form of currency is with accessibility; a common medium of exchange has to be common to all or it just isn't useful.

This is problematic for small businesses or service providers who simply might not have the means to accept/conduct digital transfers.  

2 years 32 weeks ago
Alexander Cavell's picture
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It would be foolish, as James observes, to create a purely digital currency. Currencies designed to facilitate digital transactions have an extremely patchy history, as a brief review of the literature available on bitcoins (http://www.wired.co.uk/news/archive/2011-05/16/bitcoin-p2p-currency) will make clear.

Another problem associated with the increasing digitisation of currency is the possibility that those seeking to use paper money will become marginalised. There are a lot of preconditions attached to applications for bank accounts and debit cards, and even more linked to credit cards. Those living in extreme poverty, or people who have a poor credit history will find themselves forced to rely on a form of transaction that could become increasingly obsolete. This will limit the range of choices available to poor people in market transactions of even the most minor kind.

2 years 32 weeks ago
booji's picture
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The problem with bitcoins and other digital currencies so far has been that they are not national currencies and so are not likely to be accepted widely, this makes them vulnerable and prone to failure. I believe this discussion should not be about splitting up the pound or dollar into multiple currencies or even getting rid of them just moving them to being entirely electronic.

James' objections that not everyone could use it are not likely to last long (dont businesses have to have the facility to take credit/debit cards now?) even for businesses that dont accept cards most will have access to the internet either by computer and use paypal or by phone and use something like google wallet there have been quite a few articles suggesting that such things could replace cash and eventually cards (and our oyster cards to boot!)

2 years 32 weeks ago
Alex Helling's picture
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I obviously should have been clearer that I did not mean getting rid of the pound and replacing it with bitcoins (or something similar) it would still be the pound, it would be backed by the Bank of England, there would just be no cash. I would have thought that today for most people they are much more likely to have their mobile phone on them than cash so the convenience argument could even go the opposite way to James' suggestion.

 

2 years 32 weeks ago
Panait Adriana's picture
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i agree with everything that you've said, but what about fake money? it is way easier to create electronic fake money and to steal the bitcoins than it is to creat and steal actual paper made money. and what about finding the "bad guys"? isn't again a lot more easier for the criminals to not get punished?

2 years 32 weeks ago
Alex Helling's picture
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Once again please ignore the bitcoins, a decentralised currency makes security much more difficult. 

However I also more generally disagree with you; I cant see how a currency being all electronic would be more vulnerable than the hybrid we have at the moment. Even if all the security remained exactly the same as it is now there would be no new dangers, there is already the danger you mention, but old dangers of forgery of notes, coins and cheques will dissapear, old style bank robberies would not be possible so physical safety in relation to money may well also increase.

2 years 31 weeks ago
Dina's picture
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While it seems a completely rational chain of thought to eventually phase out physical currency, it is something that will be a long time coming, and it a very clear representation of a modern, highly developed society to simply just use our debit cards everywhere we go. However, even in these societies there are multiple places that using your card is not the most convenient option, and can incur a charge as a result. That being said, I find it highly unlikely that there would be a switch in our lifetimes to an entirely virtual currency. Bitcoin was a completely failed project, and this was because of a lack of faith and trust in the currency. An entirely virtual currency will never occur in actuality until we find something to make it trust worthy. While we do live in an increasingly abstract world, a completely virtual currency is just too abstract for us at the present time.  

2 years 31 weeks ago
Alex Helling's picture
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Relevant to this thread: O2 have launched a mobile wallet app. However it looks more like the app is aimed at competoing with cards rather than cold hard cash.

http://www.bbc.co.uk/news/technology-17842926

2 years 30 weeks ago
LanceD's picture
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Edited by moderator.

I don't think it is possible because there are still business owners who prefer the use of cash instead of check and debit/credit cards. As most Americans do not have cash in their banking account for extra small emergencies, it is essential to have cash available to you right away. You may want an instant payday cash advance if you need some fast cash. You might be trying to help a stranded friend or just trying to get your car fixed after it broke down on the freeway. Either way, you have access to fast cash. 

2 years 30 weeks ago
Siddhant Yadav's picture
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what i think is that the use of virtual money is increasing day by day now even virtual credit card are very popular over web but still cash has its own place that cant be taken..

 

2 years 2 weeks ago
peterM's picture
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Moving money, where bills or plastic are no longer necessary, are quickly changing consumer behavior and expectations. This method is being done by means of the so-called "digital wallet". Paypal is one of the known provider, but, there are those who became disappointed as many have felt the sting of lost funds, account freezes and other service nightmares that some may say rest just this side of downright fraud. Then there are the fees. For those who desire alternatives, there's Dwolla, an online payments site that claims it does a better job than the competition, for less money. 

1 year 12 weeks ago
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