| As the use of paper money declines, accelerated by the pandemic, a growing number of businesses are no longer accepting physical forms of money. The benefits of payment system innovations are too many to list, but what does our dependence on digitization mean?
Even before the pandemic, Pew Research Center data showed 29% of Americans were not using cash to make purchases in a regular week.
Generationally, younger people were less likely to use cash for such transactions, with 34% of participants below the age of 50 indicating they did not use physical currency to make purchases in an average week, compared to 23% for those who were at least 50.
Parents are introducing their kids to digital money at younger and younger ages. In an informal poll I conducted on social media, I asked at what age would parents give their children access to digital money, via debit cards or an app.
While most parents indicated they would wait until middle school or high school, 13% said they would provide their child with access to digital funds before they turned 11 years old. Less than 1% said they would wait until college.
Learning to budget money at an early age is an incredibly important skill, but do we now have an entire generation with a digital trail of their spending habits? Combined with a social media trail that contains personal views on policy and government, this data could have enormous implications.
If governments switch to central bank digital currencies—and currently 91 countries are actively researching digital forms of their fiat currency or have implemented one already, how does this fit into the equation? Armed with greater data on their consumers, governments could perform closer surveillance on their citizens.
Recently, U.S. Sen. Sherrod Brown (D-OH), chairman of the Senate Banking, Housing, and Urban Affairs Committee Chairman, noted the inherent dangers of anonymous crypto transactions in a hearing on digital assets, “Understanding the Role of Digital Assets in Illicit Finance."
However, the possibility that CBDCs could enable more potent government surveillance is just as real.
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