Will Cash Be Replaced by Digital Currency? Reality and Future Outlook Behind the Trend
The current status of Digital Money development
In recent years, “de-cashification” has gradually become a global trend. According to a report by the Bank for International Settlements (BIS), by early 2025, more than 70 countries worldwide will have entered the research and development or pilot stage of Digital Money.
Taking China as an example, the digital renminbi (e-CNY) has been implemented in multiple locations, covering various scenarios such as subways, supermarkets, and hospitals. Although Europe and the United States started a bit later, initiatives like the digital euro and the FedNow system are also advancing rapidly.
Why are banknotes still indispensable?
Despite the unstoppable wave of digitization, paper money still has irreplaceable characteristics:
- Emergency payment means: In cases of sudden events like power outages or network disconnections, cash remains a reliable medium of exchange.
- Demand for anonymous transactions: In some small-scale, private scenarios, people prefer to use untraceable cash.
- Culture and Tradition: In social scenarios like red envelopes and tips, paper money still holds a sense of ritual.
In addition, the United Nations has pointed out that promoting a cashless society too quickly may exacerbate the digital divide and affect vulnerable groups.
What problems can Digital Money solve?
Digital Money does indeed outperform paper currency in many aspects:
- Anti-money laundering and regulatory convenience: all transactions are traceable, which helps the government in anti-corruption and tax management.
- Improve payment efficiency: especially for cross-border payments, Digital Money is faster and cheaper than systems like SWIFT.
- Save issuance costs: no need for printing, transportation, and destruction.
Therefore, more and more governments are supporting the exploration of Digital Money under the fiat currency framework to optimize the national financial infrastructure.
Analysis of the Potential to Replace Paper Currency
From a practical perspective, a comprehensive “de-cashization” needs to meet the following prerequisites:
- The national digital payment capability has reached the standard.
- Policy support and legal protection improvement
- The technical foundation of high security and stability.
Currently, Nordic countries such as Sweden and Norway are nearing a cashless society, with the usage rate of physical banknotes at less than 10%. However, in developing regions like Africa and South Asia, banknotes still dominate.
It is evident that the process of digital money replacing paper currency has significant regional differences.
Which countries are most likely to be the first to “de-dollarize”?
According to a McKinsey study, the following countries have the most potential to be the first to achieve “de-cashification”:
- Sweden: Riksbank is accelerating the promotion of the electronic krona.
- China: Digital Money Renminbi has entered daily life.
- South Korea and Japan: The penetration rate of digital payments exceeds 90%, and the policy support is well-established.
In the next 5-10 years, these countries may become pioneers of a “cashless society.”