Very interesting perspective. Most people who live with bank money can't even imagine a world without it.
There is one thing a centralised digital currency makes far easier, though. It makes it easier to "print" new money and cream that off into bankers' pockets. Most of the richest people in the world are in finance.
Currency notes and any backing standard like gold are quickly moved to and stored in separate secure facilities, and international currency is traded to maintain quotas. All of the records are stored in databases in private datacenters with backups and hard paper copies. The rest of the banking world also has ledgers that track the other end of any transfers in and out of a specific region, bank, and branch so there is a lot of distributed data for accounts and transactions.
Internet access is just a convenience. Phone calls and faxes work fine and larger banks have private networks backed by fiber, microwave and satellite links. If that's all unavailable then records will be moved with the physical cash.
Stopping internet would do nothing. Stopping all digital access would slow down some transactions by hours or days. Stopping all physical and digital access would completely stop transactions but the rest of the global system will continue on and will usually cover for any problems.
So the worst you could is stop transfers for hours or days, and with this kind of money you'll end up facing military action aided by intelligence services that will want you locked up in a hole for a very long time.
You can already hold US dollars in digital form. You're describing exactly how banks work. The reasons that transfers cost money or people outside the US can't hold accounts are not technical.
Let's make this simpler: If money disappeared, a lot of people would die. I don't care how long you make the transition period; even if it's a change spread across 20 years, without a database of resources and how many belong to each person (which is what money is), you aren't going to be able to coordinate people well enough to feed billions of people each day. How would the deletion of the database serve anyone?
If your paper money does not store value directly. Which means you can't eat it or directly build anything useful with it. And your checking account is simply a digital representation of that paper then i would argue that a purely digital currency is simply an evolution of that and not actually massively different from paper. The difference being the removal of the requirement of centralized control.
Wait, why would digital currency remove physical bank notes? They could still exists, just be liabilities of the central bank rather than private banks, right?
The provlem with your concept it that the ratio of 'real' money to 'fake' money is actually zero.
There are only three kinds of money: central bank reserves, which you can't get access to, cash, and commercial money, what you are calling 'fake money'
So if everyone tried to take out the money in cash, yes, there is simply less cash than 'digital money', so its impossible.
But there is no 'real money' except cash that you as an ibdividual has ever had your hands on.
The system, as designed, cannot work without banks. So its unfair to call banks 'smoke and mirrors' - you would have to redesigns the whole economy to get rid of them
* Logistics: if you have poor infrastructure and remote communities, you eventually have to send armoured trucks full of notes and coins to replenish those lost to attrition or external trade. It seems a bit easier and less risky just to let people query the central bank from a satellite-based hotspot.
* Universal access: Modern payment systems tend to be for the (relatively) well-off. Commercial banks aren't going to be interested in handing out debit cards and maintaining accounts for people with an average balance of only a few dollar-equivalents. A state program can afford to operate at a loss (and may actually deliver cost savings if it can be used as a cheap way to disburse subsidy or welfare payments)
most people globally do hold most of their savings in cash, many people are unbanked and physical currency is the only way they have to preserve wealth.
Paper money still has a very important role, because it can't simply be deleted from your account.
That's important, because central banks are considering negative interest rate policy, which would mean your bank account would drop by a percentage each month. This would drive people to spend or invest their money, supporting consumption and inflating asset prices.
The reason they can't do that right now is because many people would withdraw their funds and hold cash. That option needs to be removed for negative interest rate policy to be broadly implemented.
(There are a few places, like Europe, where interest rates already went negative, but only slightly and it only applied to institutions like banks).
- I think if digital currencies become more popular and more usable for smaller transactions, then it could possibly offset the loss of not being able to mine new coins in the future.
- I think lending out money will still be an important function of a bank, but it would already be awesome if we don't need a bank account anymore to do transactions over the internet or even in shops. Or if we can send money to each other without requiring our counter party to have a bank account.
Or, you know, you could just pay people with cash and checks.
Every country in the world has analog public financial instruments, and most have or are developing digital instruments. We don't really need to use a Switzerland's worth of electricity to move money around.
I was thinking that in a far far future if Central Bank Digital Currencies become the norm the phenomenon of Bank Runs would be a thing of the past because the Fed could not possibly engage in the role of credit intermediary and fractional banking , so every dollar would be just laying there and not be ‘put to work’ in any shape or form and thus it would always be available to be redeemed .
Of course people will still need loans and credit but that also means that each and every citizen could become a bond issuer and try to convince the market at large in the same way that they are now trying to convince their bank to lend them money to finance purchases
A single global bank in a world without paper money/gold/etc might be different.
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