The last few years have been an interesting time for money. The growth of digital currency and cryptocurrency has left many wondering what money in the future will look like. The truth is, we all know where money is headed even though nothing is set in stone yet.
Although everything has been gradual, money still has the tendency to get many people off-guard when it undergoes a metamorphosis. There are predictions on what money in the future could look like, but the best place to start is to look at the past and what it tells us about money’s future.
The History of Money and What it is Telling Us
In the past, money has gone through some big changes. But regardless of those changes, it always works like part of the natural order, like gravity or water. Any alternatives to how money works seem like an absurd game – until some big comes along and everyone is shocked. We get used to the new money, and the cycle continues as if nothing happened.
We might be on the cusp of some major shifts now. Whereas it is impossible to say for sure how things will play out, there are some deep lessons in history that give insight into what the future of money might look like.
Money is technology
Money has always evolved and kept up with the times. Initially, there was no paper money until around 100 A.D. when a Chinese court official invented paper. Then, a few centuries later, someone invented printing by writing text on a block of wood.
This was later followed by an invention by a merchant to give his buyers a piece of paper that could be used to retrieve coins. People started using checks themselves to buy, and these are the events that preceded the invention of paper money.
The government took over the business of printing paper money, and it spread in China. In an era without cars, carrying a few pieces of paper around instead of a sack or coins was a big breakthrough.
Paper money helped China get richer. It relied on printing technologies, and even paper was new at the time.
However, this new and exciting technology came with risks. For instance, rulers could print lots of money which sometimes decimated the economy because of inflation.
Even today, money is still driven by technology. We are relying on supercomputers to send and receive money, and we now have digital currencies.
In the future, technology will continue to drive more changes in money. The full impact of crypto-curries will be clear, like paper money, and these new technologies will bring new opportunities, new ways to use money, and also new risks.
Money is public and private
One interesting developing story to watch around digital currencies has been the tension between the government and the private firms that develop the coins. This same script has run throughout the history of money.
In the mid-19th century, any bank in America could print its own paper money. So banks like Stonington Bank in Connecticut and St. Nicholas Bank in New York all had their bills. At one point, the banks were printing more than 8,000 different kinds of money.
At this time, paper money was a claim for silver or gold. That means the claim check was nothing more than a piece of paper if a bank went under. This also presented a problem for merchants who had customers with thousands of different notes. It was hard for them to tell the real from the fake.
After the Civil War, a new federal tax on paper drove most of the old banknotes out of existence. However, private banks still created money.
Even today, banks create new money by making loans. The money is stored as balances in checking and savings accounts. It’s not very different from the paper money banks used to print.
Even in the 20th century, depositors can still lose their money when a bank crumbles, just like their ancestors who were left with worthless pieces of paper.
The development of cryptocurrency had the same spirit as old money – to create a purely private currency. A currency that doesn’t need governments or banks. Technically, this is possible, and cryptocurrency has started gathering steam, but still, more than a decade after the first cryptocurrency was created, no one uses it for everyday purchases.
Crypto might not be used as purely private money but as some sort of hybrid money, the same way that money has almost always been. It’s why regulators are cracking down on stablecoins, a type of crypto-currency designed to substitute fiat currencies.
Stable money is risky money
The wildly fluctuating values of cryptocurrencies paint a bleak picture of money in the future, or do they?
Although such fluctuations can trigger anxiety, the broader risk to the economy is on the stablecoins they offer more stability. Maintaining the same value today, tomorrow and forever. As people get more confident with crypto, stablecoins have exploded in popularity.
In the history of money, the stability of money is riskier than the promise of quick riches. A good example is the money-market mutual funds that were invented in the 1970s. They were to offer something like a bank account but paid higher interest.
People put trillions into the money-market funds for safekeeping. It seemed a lot like money in the bank, but unlike banks, money-market funds were not guaranteed by the federal government.
When the Lehman Brothers bank went bankrupt in 2008, it happened that a money-market mutual fund had lent them a substantial amount of money. With the bankruptcy, it was likely that the fund could lose its money. The ripple effect is that investors started pulling money from money-market funds by the billions.
Stablecoins work a lot like these funds. When you buy them, the companies that run them turn around and invest that money. When people want to redeem their stable coins for dollars, their creators must sell off those investments. If the investment loses money, everyone suddenly wants to redeem their stablecoins which could prove unstable. Regulators know this and are getting closer to stricter regulations for these stablecoins.
While we might enjoy the comfort that comes with stability, it can be surprising when stable currencies start wobbling, and their effect on the economy can be substantial.
The future of money could largely rely on stablecoins and other cryptocurrencies. And while these options provide a stable and predictable future, the actual future could be far from that if we have history to draw from.
Predictions of Money in Future
The rise of electronic money banking and digital currencies is quickly changing money as we know it. Drawing from similar lessons and transformations of money from the past, we can make some educated predictions on what money in the future could look like.
Digital banking becomes the norm
Many people are already using digital banking in their everyday lives. Reduced risk, better efficiency, and customer service are the driving factors behind its popularity. The COVID-19 pandemic accelerated the shift to digital banking as commercial banks worked to become contactless and automated.
Seeing this approach’s benefits and potential to customers and the banks, it is unsurprising that experts believe banks will continue their push to go completely digital in their service offerings.
Digital banking opens a world of opportunities and cost-savings for the bank and customers, making it easier for either party to achieve their goals. With advancements in technology, customers could soon be able to do everything they do with a traditional account on their digital account and more.
A.I. will have more roles in the banking industry
You might not need to speak to your investment banker in the future. As digital currencies evolve and offer more investment opportunities, banks will rely on digital money management and A.I. investing in advising their customers on the best investment options. These trends will continue, and robo-advisors will be more prevalent, with hundreds of options hitting the market.
Additional benefits of AI-based investing solutions like robo-advisors include a low barrier of entry which encourages new investors and makes the investment less risky.
Robo-advisors can also automate tedious activities that concern most investors, allowing them to save time and focus on more productive tasks.
Cryptocurrencies become mainstream
Cryptocurrencies are still a foreign concept to many. But they aren’t in the same place they were a decade ago. They have consistently pushed against stereotypes emphasising decentralisation, immutability, and transparency and leveraging the online banking universe.
Despite the advancement, most people still do not trust cryptocurrencies, which have a history of being notoriously volatile and lacking regulations.
But that doesn’t change the fact that the world is moving towards a system that rewards convenience, and blockchain-based digital currency looks like a viable future path.
Major industry players have invested heavily in cryptocurrency research and blockchain projects. It’s unclear where cryptocurrencies will end up because of their current impasse with regulators, but all signs indicate that some aspects of digital currency will be a huge part of the money in the future.
Nations go cashless
Many countries are already favouring digital payments instead of cash. Living in a world with no physical money might sound futuristic, but with the ease of making payments through digital platforms, that future is not too far away.
Some developed economies are already embracing a no-cash lifestyle faster than others. With the potential benefits that digital payment infrastructures promise, countries will be excited to welcome new payment methods.
Data-driven currency will expand rapidly
Surveillance and capitalism are part of the fabric of our world. Every decision made is based on data and what better way to drive the economy than with data-driven money that can be programmable?
Going by the data, we will likely change how we think and interact with currency. So, naturally, the future of money will involve data. Having data-driven money will create new opportunities for millions of people. Some experts have even gone ahead to point out how data is a currency in and of itself.
Money management becomes more purpose-driven
Emerging developments in the fintech world suggest that money will work more for us and our values. The rise of impact investing and belief buying is creating a young generation of investors using money more purposefully, and they want the banks to reflect that.
Passionate investors are not tackling core issues like corruption and climate change without relying on big banks that might contradict their values. That means future investors will use impact investing platforms to make value-based investments instead of letting banks invest in whatever they please.
Conclusion
The future of money is taking shape right in front of our eyes. It might seem like everything is turning slowly, but in a few years, the fiscal landscape could be very different from where it is right now. That’s why it’s essential for consumers to understand money and figure out how they will capitalise on these changes to ensure money serves them better.
