As the old saying goes, “cash is king,” but how true is this anymore? While cash (the paper kind) provides you the ultimate form of liquidity and is rather anonymous in its use, it is actually rather burdensome to carry, and sometimes even difficult to use. While the push by some businesses and governments to move to a cashless society, those who use cash tend to be poorer and unbanked. More recently, there has been somewhat of a push by some to stop carrying or using cash because of the Coronavirus pandemic. So, are we to see a future without paper money, or is this relic here to stay? You might be surprised to hear that in the U.S., cash and debit cards (linked to checking accounts) make up more than 50% of all face-to-face transactions.
More often than not, young people today are more likely to conduct many transactions using peer-to-peer (P2P) apps like Venmo, Paypal, Zelle, or another service. There are now blurred lines between these P2P apps, and what might seem like more traditional business-to-consumer (B2C) services and apps where you can purchase goods and services from businesses. While these P2P apps are increasingly popular, in fact cash and debit cards remain the primary means of conducting transactions.
You might wonder how these P2P apps make money, considering they provide you what appears to be generally a free service. The most obvious ways they make money are by charging retailers fees for their transactions or through fees charged to people who use credit. Venmo and other P2P competitors are now beginning to issue credit cards, acting much more like a traditional bank than before. So, what for a long time was simply money that had moved outside of the traditional banking sector is in some ways returning home to that broader business of lending money. Once Venmo (whose parent company is Paypal) is a bank, it is effectively the same as Zelle or other bank run P2P apps.
So, we can think of it as though this whole digital currency marketplace as an evolution on our previous world where financial firms ruled the marketplace. This might be where cryptocurrency (e.g., bitcoin) and central-bank digital currency (CBDC) enters the scene. The original intention of bitcoin was partially to unseat the central banks and states who you might say have a ‘monopoly’ on the printing of money. However, central banks might have the abiliity to circumvent the threat of cryptocurrency by issuing their own CBDC, which might act enough like crypto that the layperson might not care. So, rather than get into the argument here about whether or not bitcoin can replace state-issued (or state-supported) currency, I want you to potentially think about the matter of CBDC and how it impacts the usage of cash and cash equivalents.
Questions you might consider addressing
- Do you believe that cash (the strict paper money) is on it’s way to the history books? If so, what obstacles are presented to eliminating it? Does your answer address the potential international issues with paper currency issuance?
- Do the P2P/B2C applications of money provide greater safety and liquidity when considering the money supply? What has happened to the need to hold cash as a result of these technological innovations?
- The pandemic has had large effects on the monetary system, and certain firms willingness to hold or take cash for transactions. This will likely propel a shift in cash usage in the coming years. Does this appear to be a positive change? Why or why not?
- During the pandemic, monetary policy has been particularly aggressive, and likewise currency issued by the U.S. government has changed somewhat dramatically. Does this square with your image of what happened with cash holdings and usage during the pandemic?
- Have the “problems” that cryptocurrency promised to solve largely been solved by existing institutions and actors? If not, what are the primary reasons and facts that lead you to believe that cryptocurrency can unseat dollar (or state-issued currency) prominence?
Guidelines (please read)
- Generally, you should pick a question or topic and go with it.
- Be mindful of the word limits, this should be 250-300 words. Longer is not better, but if what you are saying is well-written, it can be slightly longer.
- Form an opinion and back it up. Do not try to answer all these topics or questions.
- Use facts to support an opinion. However, don’t say things like… “I think this…” to start the assignment. Don’t tell me why you’re doing this assignment. Just get to the point.
- Do not just agree with what someone else wrote.
- Do not assume everyone has read all of the articles you are citing, so quote articles if you must. However, citations here (and everywhere else you write) should be extremely limited. It is better to restate and cite.
- Citations do not have to be particularly long or perfectly written, just direct me to the source. Use numbers or another method to clarify which citation I should be looking at.
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