BW Businessworld

E-money: The Future Of Money

Money is changing form more easily and going places at breathtaking speed — and digital money could look vastly different in 20 years

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Using real cash may seem like such a major convenience today. Far out in the digital future, though, cash will mutate from one form to another at blazing speeds. One minute, you’ll be transacting in crypto-currencies; the next you’ll probably exchange digital credits to purchase new gadgets — and for almost any other monetary transaction.

In a 2011 science fiction movie, In Time, currency is measured by a digital clock, which extends one’s life, and “time” credits are exchanged between people, essentially meaning that people earn or spend time credits. When one’s “time” credits are exhausted, that person dies, i.e. has ‘timed out.’ In this movie, ‘time’ becomes the de facto means of exchange. Of course, this movie is based in 2169. Needless to say, though, it provides us a glimpse of what is possible.

Technology is enabling us to transact digitally through e-money, e-wallets and crypto-currencies like never before and paper currency is slowly fading. “Over the next two decades, probably paper currency is coming to an end,” says Mumbai-based Chetan Parikh, founder of Jeetay Investments. “What you will have probably are digital currencies. There is a concerted move around the world to move digital, and it’s a matter of time before cash may be phased out.”

More Money Goes Digital
In fact, a new digital currency that started just seven years ago, is now being increasingly used to make and receive payments. Bitcoins are being exchanged through over a hundred thousand merchants, and counting. Bitcoin is digital currency stored in millions of computers across the world; transactions are recorded on blockchains that cannot be deleted, which makes fraud virtually impossible.

Like bitcoins, many other digital ways of monetary exchange is increasingly gaining currency. Investments in fintech is estimated at over $11 billion in the last few years, all with an eye to moving money smoothly and easily across borders.

National Currencies May Change
Of course, while digital money gains ground, governments will still be the last and final authority issuing currency as they have the ability to levy taxes. So, fiat money will still rule.

However, the present state of fiat currency may see some cataclysmic changes in the next two decades largely because of over-leverage of governments, and tremendous stress in the financial system globally, global geopolitical systems, etc.

Hence, the national currencies could undergo a metamorphosis. “There could probably be a breakdown in the financial system, which will accelerate the move towards digitization. Gold may come back in some shape of form in the monetary system, because you got to get various countries to a common standard.”

Interchangeable Store Of Value
For years, paper currency have acted as the store of value because they were backed by gold and were issued by the government. But some of the newer currencies like bitcoin are not backed by any authority as it is based on technology.

But they have their own value. Prices of digital ‘money’ are oscillate and sometimes subjected to speculative frenzies, so generally characteristic of any dynamic market. For example, in 2012 bitcoins were trading at $12 apiece. However, the price of a bitcoin in 2014 surged to over Rs 70,000, collapsed to Rs 20,000 in 2015, and has now surged up back to Rs 53,672.

Arguably, our digital wallets could have a few such credits that fluctuate in value.

The Next Wave Of Money
On the other hand, there will be newer technologies floating around as digital currency which also poses a risk to the future of money. Fraudsters may find ways to make fake digital currency, which will debase the value of the digital currency one is holding.

All this will mean that as more sophistication is achieved in technology, preserving and enhancing the value of one’s money becomes even more integral. People will have to keep a tab on so many different aspects of money and its financial implications.

Artificial intelligence and robotics will play an increasing role in retrieving and exchanging money. Robotics is already expanding and placing food orders depending on pre-set preferences, at the same time making payments.

Already much money is being invested in robotics and artificial intelligence, which can easily master one’s habits and make choices such as buying or selling. Robo-money will be wallets that increasingly manage themselves, automatically making investments or spending money on our behalf, given certain pre-conditions.

As more digital money is introduced — and is more widely accepted — e-wallets will hold various digital currencies that are fungible. On the other hand, this is likely to see more fluctuations in prices of digital currencies, much like the way today’s currencies fluctuate.

Robo-advisory will also increase, which will reduce the cost of managing one’s money. Robo-advisory is already a huge business in overseas markets, with consulting firm A. T. Kearney forecasting that robo-advice could turn into a $2.2 trillion industry by 2020.

But things are still evolving. How exactly the digital future will shape up remains to be seen, even as cyber security around money will have to increase. Parikh reckons that it’s possible that the whole global economy will turn cashless in the next twenty years, but believes that at the same time “There has to also be a huge security interface that has to come in. People will need assurance of heightened levels of security.”

Needless to say, the next two decades will be challenging and exciting. While digital money will have its many glitches, it promises to also become all pervasive — and revolutionising.

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