Digitalisation has reshaped how we communicate, organise, interact, move and trade. It is now changing money. Mobile-phone based electronic payments are becoming just like cash: contactless, cheap and easy to make on a peer to peer basis, including across borders. Life without a bank account becomes possible, which helps financial inclusion in places with no banks and high mobile penetration.
Many companies are seeking to exploit the synergies between money and platforms in a digital economy. In China, Tencent and Ant Financial aggregate payments with social and commercial activities for millions of users. Facebook and 27 partners have announced plans for a Libra digital coin.
For governments and central banks, the digitalisation of money raises new challenges and the Bank for International Settlements warned this week that they are coming “sooner than we think”. First, physical cash may be disappearing as a medium of exchange. Trust in banks has depended on the perceived convertibility of deposits to cash. In a cashless society, there would be no direct access by citizens to sovereign money. Deposits would no longer be convertible with possible detrimental effects on financial stability.