Will the society reject paper money, in what way it is inferior to cryptocurrency, and in what case it will lose to the digital Yuan?
Not in the near future, but within 10-15 years, the digital currency will replace paper money, said Liu Yihua, a researcher at the Taihe analytical center. According to him, during that period there will be deep changes in the financial sphere, which will lead to the formation of a society of cashless money.
"In the long run, as deep changes in the trade and financial sphere take place, the cashless society will come very quickly, digital currencies like the DC/EP of China's Central Bank will be able to completely replace cash...at the earliest, when digital currency can replace paper money, probably within the next 10-15 years," Liu yihua suggested.
As an example of a Central Bank digital currency (CBDC), he cited China's national cryptocurrency. At the same time, Liu Yihua stressed that its release does not imply the creation of a new currency, but is a replacement for paper money.
The refusal of cash — is it real?
Digital payment systems are being developed not only in China. For example, in November, Vice-President of the European Commission Valdis Dombrovskis said that the European Union plans to launch a single digital system by the end of 2021. This will help solve the problem of EU citizens rejecting cash, and also increases the realism of Liu Yihua's assumptions.
A senior analyst partially agreed with his forecast. In his opinion, it will not be possible to completely replace paper money in such a short period of time. Digital currencies will take a dominant position in major cities of the world and countries with a developed IT infrastructure. But the penetration of new technologies will not have time to cover the entire world, especially the rural population, which even today sometimes resorts to natural exchange.
Liu Yihua's forecast is too ambitious, but it has grounds to be somewhat realistic..
Sergey Troshin, CEO of Six Nines data center, expressed a greater agreement with Liu Yihua's vision. From his point of view, the forecast is realistic, if we talk about moving away from paper money. Even today, during the period of self-isolation due to rumors about the epidemic danger of banknotes, many citizens almost gave up cash, using cards and online transfers.
Troshin noted that today the penetration of cryptocurrencies into the masses is quite low. In 10-15 years, the popularity of digital money will grow, but the complete displacement of paper bills will occur only if there are anonymous digital alternatives with a relatively stable exchange rate. So far, there are difficulties with this: most cryptocurrencies are volatile, and even among them, only a few maintain anonymity. As for stable coins, they are usually centralized and not anonymous projects of corporations.
Maria Stankevich, development Director of the EXMO exchange, added that cash, as well as traditional Bank deposits, may be a thing of the past. This will happen in the case of the spread of "electronic money", which is essentially a new banking product. However, it is important to emphasize that China's digital currency will be an absolute analog of the paper Yuan, we are not talking about either blockchain or decentralization.
In one form or another, non-cash transfers and digital assets will inevitably replace paper money, it is only a matter of time, said Viktor Pershikov, a leading analyst at 8848 Invest. He expects that this will happen painlessly and will not affect the financial and banking system of nations, especially in the context of the development of mobile networks and digitalization of the population.
"The first countries that will move away from the traditional system of Fiat funds in the future will be the countries from africa, who are suffering from galloping inflation: a cluster has already emerged in africa, within which residents are switching to digital loans and non-cash payments, even in spite of antediluvian and outdated mobile technologies and weak financial infrastructure. In this regard, the transition to digital money will take much longer for developed countries and economies," Pershikov is sure.
Advantages and disadvantages of digital currencies
Liu Yihua continued that digital currencies issued by Central banks have advantages over Bitcoin and other coins. First, national cryptocurrencies have a more stable exchange rate. Secondly, they are regulated by the state, while the release of, for example, BTC and Ethereum is determined by "algorithms and miners".
Another opinion was voiced by Zuborev. He believes that digital national currencies have a significant disadvantage — absolute control of all financial transactions by the state. However, it can also help to defeat corruption. The disadvantage of cryptocurrencies is the presence of criminal schemes. With the transition of money to digital form, fraud methods become more numerous and easier to implement.
Troshin added that cryptocurrencies are in most cases less convenient for retail users than Fiat currencies. Moreover, the latter, in addition to a more stable exchange rate, have a high legal protection.
However, Bitcoin and other digital coins have several advantages, Troshin said. Cryptocurrencies provide good opportunities for capital accumulation due to the long-term price growth as the number of users increases. Another feature is seamless cross-border payments.
Digital currencies of banks versus Bitcoin
National digital currencies can be called a competitor to Bitcoin and other coins. Cryptocurrencies still have significant drawbacks. For example, there are high risks due to exchange rate volatility, high commissions for input and output, involvement in criminal schemes, low prevalence in the world, and so on. For these reasons, ordinary users can opt for digital payment systems developed by Central banks.
Zuborev holds a different position. He is sure that the presence or absence of digital currencies of the Central Bank practically does not affect the demand for cryptocurrencies. Therefore, there will be no direct threat to Bitcoin here, but possible financial control can play a role.
Troshin believes that national cryptocurrencies will compete primarily with corporate stable coins, such as USDT or USDC, as well as with non-cash Fiat. Bitcoin and other classic cryptocurrencies have their own niche: they are decentralized, not controlled by the state, not subject to uncontrolled emission, and some are even anonymous.
"If a person prefers reliability, he will use state currencies. If government intervention seems undesirable — distributed cryptocurrencies. However, for their full-fledged global acceptance as payment means, it is desirable to combine anonymity, exchange rate stability and decentralization," Troshin believes.
Stankevich suggested that digital currencies of the Central Bank will not have an impact on Bitcoin, if they are only an analogue of ordinary money. Demand for cryptocurrencies will remain due to some users distrust of the state, hyperinflation of national money, ease of use and other factors. At the same time, CBDCS can displace existing digital coins if they offer new features that are not available for traditional money.
"But despite the utopian idea of replacing banks with cryptocurrencies, the following scenario is possible in the future of 10 years. First of all, consumer lending based on decentralized finance technology (DeFi) comes to mind. With it, customers will no longer have to collect a huge number of certificates and documents confirming their credit history and solvency. It will be enough to pawn several cryptocurrency tokens and get the necessary credit from any bank in the world. So, for example, European users will be able to get loans from American banks, and Americans will be able to borrow from banks in the Emirates or China.
Digitalization will take place gradually
Experts agreed that digital money will gradually replace traditional ones. However, it is too early to talk about the complete displacement of paper currency within 10-15 years, most likely it will affect only large, developed cities and countries. At the same time, digitalization of the payment system may occur in developing countries in Africa, which are suffering from galloping inflation. Moreover, now Bitcoin is in great demand in them.
Digital currencies issued by the Central Bank are unlikely to compete with Bitcoin, only if they offer a new, competitive product. Otherwise, the demand for cryptocurrencies will continue, as they provide some independence from the state. At the same time, they still have a number of disadvantages, such as high price volatility, weak legal protection for users, low prevalence, and so on.