Making Digital Money More Like Cash
Dr Ignacio Mas and Reza Jalili
For most services, we expect diversity, such as multiple transport modes, power sources, and educational offers. However, in digital money, we often settle for a single format: account-based money from licensed institutions. This trend comes with increasing pressure to eliminate traditional cash, which has served us well for centuries.
Digital money has improved safety and convenience, allowing us to view balances, make remote payments, and automate bills. Yet, we sacrifice functionality. Three aspects are overlooked:
1. Fixed-Denomination Bearer Money: We lack digital cash-like options to be held and transferred without involving third-party rails. This type of money would enable small transactions, allow users to carry only what they need, and serve those who cannot manage accounts.
2. Frictional Money: The current digital systems prioritize convenience at the point of payment, ignoring the importance of managing money before spending. Users should be able to customize how they apply friction to their money, like how we manage physical cash.
3. Tangibility: There’s a need for money that can be physically embodied, integrating seamlessly into our psychological and physical realities. Today’s cash operates entirely in physical terms, while digital money demands electronic validation.
We need a system with interoperable physical cash and digital formats to bridge the gap between cash and digital money. One solution could involve visually and electronically embedding chips in banknotes for dual acceptance. However, this might not be feasible with current technology.
Alternatively, Vaiu tokenizes money as six-letter codes, functioning like digital coupons. These codes can be shared digitally or printed, allowing for physical transactions linked directly to bank accounts.
Creating a digital money system that mimics cash is essential for a cashless society. A Pareto Optimal system, which meets all existing needs while improving in some areas, is necessary to transition to digital money successfully. Emulating cash will help facilitate this transition.
