Digital currencies, banking, and central banking

Are we going cashless? Will digital currencies alter banking and central banking? #DBSAIC2018 #ReimagineAsia2030 #DBSturns50
Taimur Baig, Taojun Xie12 Jul 2018
  • The issues around digital and crypto currencies are fascinating but daunting
  • Neither electronic payment nor electronic money is new
  • What has changed is mobile computer power and connection speed
  • Is cash dying due to digitalization? We look at cross-country evidence
  • We imagine banking in 2030, in the presence of central bank digital currencies
    Photo credit: DBS

    All this and more at the DBS Asian Insights Conference (Jubilee Edition) on July 13
    #DBSAIC2018 #ReimagineAsia2030 #DBSturns50

    Considerable work is being done these days on digital currencies, catching the attention of the public and policy-makers alike. Ranging from cryptocurrencies backed by blockchain to the notion of central bank digital currencies, a new frontier has opened.

    The issues around digital and crypto currencies are fascinating but daunting. The basic concept of fiat money is formidable, with nontrivial underpinnings.
    The notion of digital currency entails consideration of payments system, banking, monetary policy, and financial stability.

    Add to that layers of computer science and cryptography necessary to understand cryptocurrencies, it is little wonder that misperceptions abound.

    Neither electronic payment nor electronic money is new. More than a century ago, banks and traders communicated in real time via telegraph, settling payments and executing trades. Central banks have been managing the issuance of reserves to banks electronically for many decades. Mobile payment and digital wallets have been around for nearly two decades. What has changed is mobile computer power and connection speed, making digitalisation ubiquitous.

    Is cash dying due to digitalization? We begin by looking at some data on usage of cash and noncash around the world. In the context of Singapore, we present some findings based on monthly data from DBS Bank’s 4.9 million accounts. We don’t see cash disappearing, for some good reasons.

    We then lay out some key elements of the crypto currency phenomenon and its potential use and limitations. We like the technology underlying cryptos, but see many limitations getting in the way of their wide proliferation.

    We conclude with the provocative concept of central bank digital currency, which is at once old and new. We imagine a world without cash, and conjure what that would mean for banks, nonbanks, and policy. Giving the people central bank accounts credited with digital currency could change finance, banking, and central banking fundamentally. These are very early days; we don’t see any monetary authority rushing in this direction.

    Taimur Baig, Ph.D.
    Chief Economist - G3 & Asia

    Taojun Xie
    Research Fellow - Singapore Management University

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