Opinion: Going Cashless with Fedcoin

China’s Digital Currency Electronic Payment System (DCEP)

China is set to launch their Digital Currency Electronic Payment system on April 25th, 2020. The government has been developing DCEP for well over six years. The size and scale of the project is largely unprecedented. China has the largest population in the world, reaching almost 1.5 billion individuals. Not all of whom have access to the internet, or digital systems. As of December 2018, 40% of Chinese citizens are still without internet access. If China truly wants to go cashless, they must first ensure that 100% of their population as reliable access to the internet.

What Would Cashless Look like?

So while China cannot go completely cashless, let’s imagine a world where Elon Musk and SpaceX has launched StarLink, and every person in the world has the internet. What sort of things become possible?

The Big Exchange

The first thing to happen in a cashless society, would be that the government would have to facilitate a massive transformation from physical cash into digital currency. Anyone holding physical cash would need to go to a bank to deposit their funds. The government would propose a cutoff date, wherein the physical bills would no longer be considered legal tender. Anyone accepting, trading, or using physical cash after a particular date, would be in violation of the law.

A Cheaper Form of Money

If you live in Canada, then you remember when the government got rid of the penny ($.01). That is because it costs $0.016 cents to make every penny. When Canada decided to get rid of the penny, they were saving taxpayers approximately $11 million per year. On the other side of the border, the one dollar bill in the United States needs to be replaced every 18 months due to wear and tear. All of this to say that our current cash based money system is ironically expensive to maintain. A cashless society would save taxpayers the expense of maintaining a money that is subject to decay with use over time. 

Taxes

Every year, citizens and businesses all around the world must pay their taxes. If we’re doing a good job with our records, we compile all of our receipts, bills, invoices, and income statements, and forward them to our accountant. If we’re not doing a good job with our record keeping, (or we have something to hide) then filing taxes is something that we dread. I can imagine a world where filing taxes is as easy as granting the tax agency temporary, and limited access to my digital accounts for analysis. They send me a request to withdrawal my owed taxes, or auto deposit my return directly into my account.

Fines

China already has frightening power when it comes to surveillance and privacy. Authorities in Shenzhen city have the ability to send a fine to your phone for jaywalking by leveraging facial recognition technology. One step further than this is the ability to remove the money directly from your bank account. With a completely digitized money system, we begin to see more features like this emerge. Auto paying fines is the sort of thing you see in a dystopian George Orwell novel. Frightening enough, this is just the sort of thing that will become a reality in the near future.

Income Assistance

Welfare is a necessary part of most countries. People need financial aid for any number of reasons. Whether that be the death of a family member, or an economic crisis like the one brought on by COVID-19. The paradigm for individuals ends up being the same. People need additional financial support now. People do not have the time, or extra money to wait 2 weeks while the government prints and mails checks. In the case of the unemployment checks in New York State, the checks are being delayed by old and archaic banking systems. With a fully digitized cash system, we would see support reach families and individuals faster, and with less friction.

Privacy and Surveillance

In a society where our transactions take place on a digital ledger, all of monetary exchanges become traceable by those who control the ledger. Anti money laundering (AML), and Know Your Client (KYC) processes already exist to detect businesses and individuals who are using money for malicious purposes. While it is easy to support action against organized crime, most of us are not willing to give up our financial privacy. This is one of the main reasons that many people are switching to cryptocurrencies that preserve anonymity. Where and how you spend your money says a lot about who you are. In a cashless society, it is likely this data will be owned and shared amongst governments and corporations, just like our data.

Organized Crime

This may be a gross oversimplification, but organized crime could grind to a halt in a truly cashless society. Most organized crime function solely using cash, either due to habit, or the superior untraceability of it. Bitcoin is pseudonymous or semi-anonymous. Although your name isn’t recorded on the bitcoin ledger, your identity can be known by tracing the bitcoin to an IP address or an associated bank account. Cash is still the preferred medium of exchange for criminals to exchange goods and services with one another. If we kill cash as a society, then that could be a major blow to the lifeblood of organized crime.

Laundering money would become infinitely more difficult, as simply holding cash would be a crime. There is nowhere where you could take physical cash in order to exchange it for the digital version. As explained earlier, after “The Big Exchange”, no banks would be allowed to exchange physical cash for its digital alternative.

Still a While Away

While it is fun to speculate on what a fedcoin would look like, in reality, most citizens of the world are still a while away from getting rid of the coins and bills we keep in our pockets. For now, we can observe the transformation that China is about to undertake. By allowing China to take the first steps into the digital unknown, we can tweak their model. This will allow us to bring in a digital currency that features the positive benefits of having a digital currency.