A new paper from the International Monetary Fund (IMF) suggests that cash and bank deposits could be left behind as digital money and fiat-pegged cryptocurrencies see greater adoption.
The Fintech Note, titled “The Rise of Digital Money” and published Monday, looks at how tech firms are increasingly competing with major banks and credit card companies.
The author’s write in the introduction:
“Digital forms of money are increasingly in the wallets of consumers as well as in the minds of policymakers. Cash and bank deposits are battling with so-called e-money, electronically stored monetary value denominated in, and pegged to, a currency like the euro or the dollar.”
Ultimately, cash and bank deposits “will face tough competition and could even be surpassed” by these new forms of value transfer, the paper warns.
Growing in popularity, forms of e-money like stablecoins “may be more convenient as a means of payment,” but the authors question the stability of their value. “It is, after all, economically similar to a private investment fund guaranteeing redemptions at face value. If 10 euros go in, 10 euros must come out. The issuer must be in a position to honor this pledge,” they write.
Banks should be able to stage a fightback against such payment upstarts, offering better services or similar electronic money products, the note continues, but policymakers are warned that some disruption is likely within the banking industry. Even so, banks are likely here to stay, as firms offering these new payment methods may move to become banks themselves and use their data advantage to offer targeted credit.
The paper addresses different types of new payment mechanism,