9 - The decline of cash

Summary

This review of the decade or more of cryptocurrencies has demonstrated that the dramatic “revolution” promised with the emergence of Bitcoin has not occurred, nor is it likely to occur. Bitcoin continues to exist as a rather dubious investment for the foolhardy, a useful means of conveying value, mainly for nefarious actors. In spite of the limitations of Bitcoin, its emergence and along with the whole panoply of stablecoins, continues to reverberate with central banks, particularly in the provision of cross-border payments, which remain slow, expensive and opaque. This is said to be especially burdensome for the 1.7 billion people globally without a bank account or with very limited financial services. It was at first assumed that cryptoassets and the technological innovations they embodied would overcome the problems. But as we have seen the original cryptoassets were too volatile for these purposes. Stablecoins were introduced to provide “stability” by linking the price of the “coin” to a specific currency or to a basket of assets. But, if stablecoins could ever fulfil the role of a reliable means of exchange, especially for cross-border payments, then a series of significant risks would have to be overcome. Generally, stablecoins have been unable to handle the risks involved, or have been unwilling to do so. The “wild west” era of initial coin offerings did not help. Nor, on the other hand, did Libra, but from an entirely different angle. Indeed, some see Facebook's formal introduction of Libra to the world on 18 June 2019 as a key moment, marking a threat to central banks monetary authority and their role as providers of fiat currency and prompting their interest in central bank digital currencies.

The response to Libra was indeed a “tipping point”, and the reasons for the reaction to Libra will be explored more fully in the following chapter. The focus of this chapter will be on the role of cash (notes and coins). Many central banks are concerned about cash: either the costs of its production and distribution in some locations or the decline in its use. If the use of cash is in decline, then the case for introducing CBDC is stronger than it might otherwise be.