MILAN (Reuters Breakingviews) - Cash was already unhygienic before Covid-19. Now in addition to being icky, it’s also irrelevant for many. Quarantined shoppers around the world have ditched grubby bills for more practical contactless purchases. Central banks won’t want to see traditional cash walk the plank altogether, but this may accelerate their consideration of a digital alternative.
When consumer habits change, they often stick. Nearly 90% of Chinese shoppers say they will continue to buy necessities online even after the pandemic, says Nielsen. Widespread adoption of such digital purchases will increasingly marginalise physical cash. That’s good in several ways. Paper money is a scourge for governments, like Italy or India, that must become more serious about fighting tax evasion and fraud. The risk is that private enterprises take the driving seat. Increasingly popular digital wallets are offered by firms such as PayPal, Venmo or the Alipay service run by China’s Ant Financial, which glean valuable information on shoppers’ habits.
Money stored with these services tends not to be covered by national deposit insurances, exposing customers to losses if the provider fails. And payment services involve fees. Cash, on the other hand, is backed by the state, offers stability, privacy and is freely exchangeable.
The conundrum is likely to accelerate something many central banks were already ruminating over: digital sovereign money that customers can store on mobile phones, cards or smart devices for everyday shopping. Some four-fifths of global central banks are already working on such projects. Sweden, which could go cashless as early as 2023, in February launched a pilot for an e-krona. And China could roll out the first sovereign digital currency later this year.
Consumers seem ready to accept state digital money. About 54% of those polled by the Economist Intelligence Unit in April said they would use state e-cash. Only a quarter trusted private cryptocurrencies like bitcoin or ethereum. In March, the U.S. Congress floated the idea of using digital dollars stored on mobile wallets to distribute Covid-19 aid to millions of unbanked citizens.
Cash won’t disappear overnight. Central banks will want to make sure the digitally unsavvy are not left behind. And people still value physical money for storage value, especially in emerging markets. But the pandemic will give coins and notes another firm shove towards eventual obsolescence.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.