The central bank favors digital currency and promotes research and development and related industry pilots

"If everyone holds cash, negative interest rates will have no effect. With the popularization of digital currency, the use of cash will drop significantly. In the case of extreme deflation, negative interest rates may be more useful than helicopter money."

This is what Zhou Xiaochuan, the governor of the People's Bank of China, said at the Boao Forum. While people are still worried about the risks of a cashless society, the central banks have been quietly promoting the arrival of this society for various reasons.

Zhou Xiaochuan pointed out earlier this month that "the development of Internet technology and digital currency, including new technologies such as blockchain, will have some impacts in the future that are not easy for people to fully imagine or predict." But at the same time, the People's Bank of China is also an undoubted leader in the exploration of digital currency: at the beginning of this year, the blockchain-based digital bill trading platform promoted by the People's Bank of China has been successfully tested, and the legal digital currency issued by the central bank has been trial-run on the platform.

Even the Swedish central bank, which is also at the forefront of a cashless society, is still at the stage of discussing whether to introduce digital currency.

A large-scale and in-depth cashless society may have a significant impact on economic operations and macro-control, and may also bring about breakthroughs in financial theory - as Zhou Xiaochuan mentioned, with the popularization of digital currency, the central bank will have an effective negative interest rate policy.

The government will benefit even more from a cashless society: from preventing crime (drug trafficking often uses cash) to avoiding corruption, from facilitating taxation to more convenient personal credit assessment, digital currency is clearly superior to cash.

Negative interest rate policy is a relief: no longer constrained by cash

Zhou Xiaochuan, the governor of the central bank, said at the Boao Forum for Asia today that when the economy is in deflation, the central bank's toolbox also includes negative interest rate policies, but in reality, negative interest rate policies are often limited in effect because people choose to hold cash rather than deposit money in banks. If digital currency is issued, the amount of cash in circulation will be greatly reduced, and people's money will be in their accounts. Under such conditions, negative interest rates can play a greater role in stimulating the economy and consumption.

Indeed, perhaps no one in the countries currently implementing negative interest rates can say that they have benefited significantly from it. The exception is safe-deposit box sellers in those countries.

The promotion of digital currency, or even its replacement of cash, means that the effective lower limit of monetary policy is not "zero". Depositors do not have the option of leaving the bank to hold cash, and the effect of negative interest rates forcing people to consume may be greatly enhanced; similarly, under ideal circumstances, an interest rate hike when the economy is overheated can also make people think twice before spending.

However, it is worth noting that digital currency may be more likely to trigger financial disintermediation. Once financial panic and financial risks occur, they will accelerate the spread and increase the destructiveness to financial stability and security.

Some people believe that blockchain technology will make financial markets completely transparent, thus bringing about a more robust financial system. However, it should be pointed out that the mainstream Diamond and Davidger bank run model does not rely on the opacity of financial markets. In theory, the bank's investment portfolio is completely transparent. But even so, unexpected large-scale redemptions can still cause problems for the financial system.

The delighted government: Convenient taxation to prevent crime

Drug trafficking transactions are mostly settled in cash, and corruption is closely related to cash. From the perspective of crime prevention, digital currency has too many advantages. A more transparent transaction system also makes it easier for the government to collect taxes accurately and efficiently, and it is also more convenient to review personal credit for loans and other purposes.

In a Goldman Sachs study, there was a clear correlation between the degree of cashlessness (horizontally) and the degree of corruption (vertically).

Fan Yifei, deputy governor of the People's Bank of China, also pointed out that digital currency is more difficult to tamper with, easier to operate online and offline, has greater visibility, and has wider channels, and has lower anti-money laundering costs than electronic currency payment systems.

China’s central bank is undoubtedly the leader in exploring digital currency

At the beginning of this year, the blockchain-based digital bill trading platform promoted by the People's Bank of China has been successfully tested, and the legal digital currency issued by the central bank has been trial-run on the platform. The exploration of digital currency by the People's Bank of China began as early as 2014.

Sweden is also considering issuing digital currency. Sweden is already a country that has basically left cash behind, and the ratio of cash in circulation to GDP has dropped from nearly 10% in 1950 to around 1.5%. At the end of last year, the Swedish central bank started discussions on whether to introduce digital currency. The deputy director of the Swedish central bank said that he hopes to make a decision on whether to issue the "electronic krona" within two years.

Central banks in most other countries are still promoting a cashless society based on various considerations:

In 2014, the Danish Central Bank decided to stop printing banknotes in the country, enter into paperless transactions from 2016, and promote digital currency payment methods nationwide.

In early December 2016, the Bank of Korea announced the abolition of coins due to the high cost of minting coins.

The European Union, Canada and the United Kingdom have also abolished oversized banknotes to varying degrees.