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Cashless Society

  Every morning, Mr. Yi bids farewell to his wife and three-year-old son and rides a shared bike to his office in downtown Beijing to work in finance. Like most Chinese city dwellers, the 37-year-old has long been cash-free, using QR codes on his phone when paying for his commute and buying lunch at the convenience store under his office building.
  Recently, however, Mr. Yi stopped using Alipay and started using a digital renminbi wallet – a pilot program launched by China’s central bank. Digital RMB is easy to use, but lacks the flair to replace the current mainstream payment platforms such as Alipay,” he says. The advantages are not as obvious, at least for individual users.” Perhaps the advantages of the digital renminbi aren’t obvious enough, but Mr. Yi’s change in payment habits foreshadows a dramatic change in the way everyone around the world will deal with money in the future.
  Digital RMB wallets don’t have all the fancy features of other payment apps, but at the end of the day, while other apps are just mediums used to tie to a user’s bank account, digital RMB wallets are filled with legal tender and issued directly to individuals without any intermediaries, traditional bank accounts or paper money involved.
  Physical money is not going to disappear completely. Only $5 trillion of the world’s total wealth today still exists in the form of cash in wallets, safes, and bank vaults, but no central bank supports a complete ban on paper money and coins. Digital currency is revolutionary because it has a whole new function. It is the equivalent of making the leap from letters to email or from libraries to the Internet.

  Digital currencies help governments fight wrongdoing, make cross-border asset transactions smoother, and connect central banks directly to individuals – something that is especially important in times of crisis. Widespread global use of digital currencies would dramatically cut operating costs in the financial sector, equating to savings of $350 per person per year. For example, cross-border transaction fees currently account for about 8% of Hong Kong’s GDP, and the use of digital currencies could wipe out these costs.
  The Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, which banks currently use for cross-border transactions, could be phased out in the future. Depending on different rules, governments may be able to access financial transaction information directly, without having to ask banks for data. In addition, the world’s 1.7 billion unbanked people could have access to the financial system. This is the biggest change the monetary system has undergone since the end of the gold standard.
  ”The international monetary system will change dramatically,” said Song Siqi, founding co-director of the Financial Technology Research Center at Fudan University’s Pan-China Institute of International Finance. As the U.S. dollar’s status as the world’s currency is likely to be significantly weakened, Song believes that digital currencies will also have “a significant impact on geopolitics and trade.
  A survey released by the Bank for International Settlements reported that 86 percent of the world’s central banks are actively exploring digital currencies, and about 60 percent of the banks surveyed are in the experimental stage. While the Federal Reserve is still hesitant, European Central Bank President Christine Lagarde has already said she wants the digital euro to come out by 2025. Studies show that 1/5 of the global population will be exposed to digital currencies issued by their central banks within three years. By 2027, some $24 trillion in global assets will exist in digital form.
| China’s impressive results |

  Unsurprisingly, China, the country that first invented paper money, is at the forefront of digital currency innovation this time. China’s central bank said that as of last August, more than 20.8 million people used digital yuan wallets in China, and they made more than 70.7 million transactions with a value of 34.5 billion yuan.
  WeChat and Alipay have 96 percent of the market share of China’s mobile payment industry, and Chinese commerce has largely gone digital under the influence of the two giants. If you pay in cash in a cab in Shanghai or Shenzhen, the driver will surely look at you with disdain.

  The rise of digital currencies may mean that the US dollar is no longer the “default currency”.

  Digital currencies help drive innovation. For years, large banks have had more resources and less innovation because they could make a profit the traditional way. These banks had the data, but didn’t know how to use it. Today, the rise of online payment platforms means that banks have to compete. For example, the EU’s “open banking” policy requires banks to share data with third-party companies to help them use it to develop new products and services.
  In addition, digital currencies have become more financially inclusive. In times of crisis, governments can issue subsidies and consumer vouchers directly to the smartphones of those affected, regardless of whether they have a bank account.
  Digital currencies can also be used for specific purposes. For example, if the government wants to promote the hospitality industry in a certain area, it can restrict some of the digital currency to be used only for food and beverage expenses and not for other goods such as gasoline; if a seaside town is destroyed by a hurricane, then the government can immediately issue disaster relief payments limited to the purchase of everyday items to those affected.
  Of course, digital currencies also have shortcomings. The digitization of large amounts of financial information does increase the risk of hacking and cybercrime. Jason Ekberg of Orwell Consulting said, “There’s no question there’s risk, but the question is how you manage the risk.”
| Shaking up dollar hegemony |

  In June last year, Mu Changchun, director of the People’s Bank of China’s Digital Currency Research Institute, said digital yuan wallets are divided into different classes of wallets according to the strength of customer identification. The four types of digital renminbi wallets with the lowest privileges are anonymous wallets with a balance limit of 10,000 yuan and a single payment limit of 2,000 yuan, which can be opened using only one’s cell phone number. If you want to pay more than 2,000 yuan for something, you can upgrade your wallet, upload your valid ID and bind your bank card information.
  The dollar’s dominance is about to be challenged. The rise of digital currencies may mean that the dollar is no longer the “default currency” and that settlements between different currencies no longer need to be converted to dollars first. Last April, JPMorgan Chase, DBS Bank and Temasek, Singapore’s state-owned investment company, announced the creation of a wholesale digital currency clearing house. Several similar proposals are being developed.
  Many countries are preferring to settle their accounts through digital currencies. The main reason for this is the increasing weaponization of the U.S. dollar for geopolitical gain. For example, the U.S. has twice pressured SWIFT to block all transactions with Iran. This is an important reason why Beijing has been working to establish global rules for digital currencies. China is the first country to submit digital currency content to ISO 20022, the Common Messaging Scheme for the Financial Services Finance Industry. The scheme is a new global standard for the transmission of data between financial institutions – such as payment transactions, credit and debit card information, securities transactions and settlement information.
  Many of the countries that are developing digital currencies have a clear goal: to reduce their reliance on the U.S. dollar. In a speech in 2019, Bank of England Governor Mark Carney said technology could solve the problem of dollar hegemony by allowing countries outside the U.S. (especially developing countries) to take back control of monetary policy. No unipolar system is applicable to a multipolar world,” he said. We should carefully consider every opportunity, including those presented by new technologies. We need to use them to create a more balanced and effective system.”
| Accelerating Tokenization |

  Another big potential for digital currencies lies in accelerated tokenization – packaging value into instantly convertible forms. For example, global real estate is worth about $280 trillion, but it’s extremely difficult to trade, requiring high fees and a series of negotiations and red tape.
  But imagine that you could use a token to represent a portion of a Thai beach house, a Bombay sapphire or a case of Normandy wine. For example, art typically appreciates much faster than the stock market, but at the moment, only people with a Sotheby’s account and a seven-figure bankroll are eligible to invest in art. And with technological innovation, we could create a digital token representing a Van Gogh or Picasso work and sell art to young investors coming from Manila to Minneapolis.
  Cryptocurrencies have made some people aware of this possibility, but if digital currencies become popular, then all investors and consumers will be able to exchange value without barriers. That’s the kind of change that new technology is about to bring in the digital finance space,” says Song Siqi.”
  In Shanghai, Duan Chu, a 32-year-old coffee merchant, enjoys a pancake purchased with the digital currency while saying, “Although digital RMB is not very popular now, I believe it will become a mainstream payment method in the future. I want to support its development as much as possible.”

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