My grandparents would be shocked to see how I just swipe a card to pay for things. No flipping through paper. No counting coins. Money is now stored remotely, and cards act like keys to unlock the value.
Even if you don't use credit, chances are that your payment method involves a digital exchange of information. And consumers are benefiting from the convenience of digital money exchanges. For instance, when I pay for gas, I insert my card, punch in a few numbers and start filling up. I don't even have to go in the store. Miranda Marquit reports on how easy it is now to apply for a loan:
"This time, filling out the loan application took only a few minutes. I received an approval within the hour, signed the promissory note almost immediately, and the money appeared in my account less than two days later. The future of lending is online as fintech companies disrupt the old model used to get a loan."
Convenience goes beyond saving time at the checkout. Digital money lets you to take financial services for a test spin without having to risk real money. You lose nothing by signing up for a demo account challenge: "Master your trading skills with a free $100,000 demo account, valid for 21 days only." No loss and no gain, but the perfect way for a nervous consumer to safely give investing a try.
Payment systems are changing, too. It's not just about how we send money or how we keep track of what's in our accounts. The very nature of money is changing. In fact, as of January 2015, there are more than 500 different types of cryptocurrencies, also called altcoins. Ten of these have market capitalizations over $10 million, verging on the mainstream.
Digital Information Exchange
People have been moving toward digital transactions for years. The federal government recently announced that it will be switching to direct deposit for almost all payments to individuals. My grandparents would be shocked, partly at how much the government pays people these days. But they would also be amazed that we don't get paid in an envelope anymore.
The federal move is a sign of the times. Most people already prefer to use forms of e-cash. They like direct deposit, third-party payment processors (like PayPal and Due), and credit cards. Banks like it, too; digital costs less than paper.
Electronic money, or e-money as the Bank of Canada calls it, has arrived. It can be transferred through smart phone, tablet, computer, or other ways. This way, people can make quick payments with their phones -- even in physical settings like the grocery store. Will cards be replaced by e-money, the way cash has been mostly replaced by cash?
Cryptocurrencies and e-Cash
The world monetary system will face the same disruption at the hands of the Internet that other sectors have already faced. The future of money in Canada might even be more about choice in payment methods.
In fact, the "in Canada" aspect might someday become an anachronism. Already, money moves internationally with ease through services like PayPal. It's a small leap to cryptocurrencies that live outside of state borders.
One of the more interesting developments has been the rise of Bitcoin. This is an entirely digital currency, created from computer processing power. It is "open source," so nobody owns the system, which means that no government controls it. It is peer-to-peer, so you can exchange Bitcoins with others for goods and services. You store your Bitcoins in your digital wallet until you need them to buy something.
Cryptocurrencies like Bitcoin bring us closer to a true trade, cutting out the middleman. (Governments.)
No processing fees.
No currency exchange.
Peer-to-peer is the closest thing to barter that you can imagine.
In a publicly available staff working paper, the Bank of Canada paints a picture of a world on the Bitcoin standard as being much like a world on the gold standard:
"Because the Bitcoin standard would closely resemble the gold standard... the paper argues that because there would be virtually no arbitrage costs for international transactions, countries could not follow independent interest rate policies under the Bitcoin standard."
Speaking of the gold standard, another emerging option is bitgold. With this type of e-cash, you buy real gold and have it stored digitally. This is physical gold, stored in a physical vault on your behalf. You access the value of your gold with the help of an encoded card. It's also possible to use online exchanges with other bitgold users. This is another way of avoiding currency exchange fees.
Peer-to-peer is not only seamless, it is borderless. Imagine buying something from the States without worrying about whether or not the Loonie is discounted more than 20 per cent against the greenback? That's the world of Bitcoins and bitgold.
A word of caution
A word of caution if you figure this might be a great way to avoid taxes. Government does not have to issue currency to levy taxes. If the government is to provide health care and education and national defence, it will still find your pockets to pay for it. Sorry, but it's only fair.
And if you think you'll be able to eliminate the banks entirely, that likelihood is still quite remote. Yacov Yacobi, one of the Microsoft researchers working on a new cryptocurrency, has learned a lot from past failed attempts to create a currency outside of governments:
"There is an element of trust without which money would not exist. Only banks, regulated by government, can provide this trust."
The future of money in Canada is going to be digital, and it might not even be "in Canada." It is also likely to offer more choices to consumers, more flexibility and fewer barriers.
I don't think my grandparents would be ready for this brave new monetary world. Are you?
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