Ever since cryptos came into existence a decade ago, a lot has changed in the financial world. Many crypto proponents suggested a while back that digital currencies will soon take over the world. They said that cryptos will eventually render fiat currencies obsolete. However, new studies show that cash is unlikely to disappear ‘anytime soon.’
Although there is declining use of cash as a payment method and the cryptos are surging, Deutsche Bank is convinced that money is here to stay. The German multinational investment bank had previously proposed that cryptos will replace fiat by 2030. But now their sentiments have changed. Their latest report indicates that they believe cash will remain as a preferred payment method for a long time.
Published on January 27, the Bank’s report said digital currencies have already displayed the potential to radically change banking, payments, central banking, and also the balance of economic power. The report reads:
“We believe a new digital currency could become mainstream within the next two years.”
The report puts into context the expected launch of both the digital yuan and Facebook‘s Libra later this year. These two tokens can make digital currencies available to over 1.5 billion Chinese citizens and almost 2.5 billion Facebook users. Combining both of them, more than half of the world’s population will get some exposure to digital currencies.
So far, virtual currencies are running in the same way as the internet during its early years. Should that trend continue, there could be over 200 million blockchain wallets by 2030. That would represent a huge increase from 50 million registered so far in 2020.
Deutsche Bank Research Projects the Future of Payments
The Bank recently forecasted the future of cash in its latest report called “The Future of Payments.” Deutsche Bank Research issued the report on January 21 Titled “Cash: the Dinosaur Will Survive … For Now.” That was the first part of a series of reports on the future of payments.
The second part of this series, called “Moving to Digital Wallets and the Extinction of Plastic Cards,” was published on January 23. Later, the third and final part of that series, “Digital Currencies: the Ultimate Hard Power Tool,” was issued on January 27.
The Bank is confident that cash will remain a significant mode of payment shortly but acknowledges that there is a growing role for the current digital payment revolution.
The first report stated that most of the cryptos are too volatile to become a viable store of value or means of payment. According to the second report, the inherent benefits of cash mean that it would survive as a payment strategy for decades to come.
What May CBDCs Bring?
Even though these sentiments feature again in the third paper, researchers think otherwise. They believe that cryptos will combine the convenience of electronic payments with the privacy associated with cash payments. The central bank digital currencies (CBDCs) will offer new solutions for dealing with challenges systemic in the global economy.
If the CBDCs were rolled out fully, Deutsche Bank is convinced that central banks can make interest-bearing accounts available for all citizens. That strategy can resolve many problems arising from the current fractional reserve banking system. Eventually, commercial banks would not be “vulnerable to bank runs”. Moreover, governments would not have to bail out the “too big to fail” institutions as it happened in 2008.
In 2017, the Bank said that the opportunities offered to businesses by blockchain technology were unlimited. In that context, Deutsche Bank predicted that around 10% of the global GDP could be regulated or tracked using the blockchain by 2027. It joined the Interbank Information Network (IIN) in September 2019.
We need to mention that According to a survey done by Deutsche Bank Research, around 33% of people in the developed countries favor cash. Moreover, over 50% are confident that cash will always be around.
Most Populous Countries Shifting to Digital Currencies
Deutsche Bank said that the future of cash would significantly depend on the developments taking place in India and China. Both countries are encouraging greater use of blockchain and digital currencies. For instance, China’s President Jinping urged the country to accelerate its blockchain adoption rate in October 2019.
On the other hand, India’s securities regulator urged the exploration of the best usage of blockchain in securities markets on January 23. China is in the later stages of developing a government-backed digital currency.
It will take time before many consider shifting to cryptos as a form of payment. Digital currencies may not replace cash, but they will take a significant market portion from cash.