Digital cash is a blessing and a curse. There is no doubt that the easy transfer of money has made professional and personal life more efficient and convenient. But, the consequences of the world’s financial sector leaving a digital imprint on our lives, are numerous in terms of the global economy and well beyond.

What is digital money?

The saying used to be, “cash is king” to indicate a healthy flow of funds or a productive business model. But, that is no longer the case.

The ability to instantaneously transfer money from person to person has systemically altered how we conduct business and handle personal expenses. But a digital economy is much more than the exchange of money online, it has the potential to entirely reshape the architecture of the world’s financial ecosystem.

Cashless payments are made by sending digital information from one person or entity to another instead of using paper money or coins. This ability to use e-money or e-currency, the alternative to traditional money, is accessible 24 hours a day, seven days a week utilizing payment networks.

Centralized vs. Decentralized Payment Networks

As PocketSense explains, a payment network can be centralized or decentralized. Centralized payment systems serve as an intermediary to move funds back and forth like PayPal or Venmo. Financial institutions such as banks and credit card companies are joining the digital landscape with centralized payment networks like Zelle, Square, Apple Pay, and Klarna that enable consumers to easily transfer funds or make purchases, even in installments. There are now digital wallets on mobile devices to replace physical wallet carrying.

Decentralized payment networks, on the other hand, cut out the middle man and encompasses transfers from entity to entity through the use of digital currency or cryptocurrencies such as Bitcoin or Ripple. No fiduciary standards are governing decentralized payment networks, which has caused some significant problems such as fake exchanges or wash trading.

By 2022, countries like Sweden, China, and the United Kingdom could be completely cashless.

Soft vs. Hard Currency Systems

Digital money also falls under two umbrellas: soft or hard electronic currency systems. When soft transactions are conducted they can easily be reversed or canceled like those made through a credit card. The transactions are also easily traceable. In contrast, hard electronic payments are nonreversible on their face, requiring additional steps such as contacting a bank to attempt to undo the transfer of funds. They are also much harder to track because there is no tangible paper trail.

This intersection of the financial sector and technological innovation (artificial intelligence, blockchain, and data science) has led to the development of a whole new industry called “Fintech” that is helping to drive the digital economy. In 2019, 64% of consumers used two or more fintech services or platforms.

How a digital economy works

A digital economy is the interconnectedness of financial systems through devices, data, processes, and the Internet of Things (IoT). It combines all facets of the economy, but in an intangible way. TechCrunch puts a digital economy into perspective explaining, “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.” Every day money is earned and spent without literally exchanging hands. This is because digital money is managed, optimized, shared, and deployed worldwide.

The United Nations 2019 Digital Economy Report clarifies that a digital economy can be broken down into three broad elements:

  • Core Components – Fundamental innovations, core technologies, and enabling infrastructures.
  • Digital and Information Technology Sectors – Key products or services that rely on core digital technologies.
  • Wider Set of Digitalizing Sectors – Digital products and services are being increasingly used.

Yet, there is still not a widely accepted definition for “digital infrastructure.”

What is valuable in a digital economy?

In a digital economy, platformization and the monetization of digital data are motivating forces turning the traditional model of supply and demand on their head because production and consumption are no longer moving in a linear path. The digital economy is cyclical, not only impacting how goods and services are purchased but also how they are manufactured. The change in production, due to a digital economy, influences the international competitiveness of all countries. The transformed production process is also becoming the lynchpin in securing national financial prosperity among competing countries. Digital economies can wreak havoc on existing alliances.

A new MIT research paper shows new tools are needed to measure the value of digital goods and services that are more representative than the gross domestic product (GDP). While GDP successfully measures production and prices in a traditional economy, when there are little to no costs like in a digital economy, GDP is no longer an effective measure. The Bureau of Economic Analysis is working to develop a methodology for calculating the digital economy’s contribution to the U.S. GDP. In its initial findings, from 2006 to 2016, BEA estimates that the value of a digital economy outpaced the overall economy annually by 5.6% and overall by 1.5%. Not to mention, in 2016, the digital economy accounted for 6.5% of the total GDP.

Implications of a digital economy

The benefits of a digital economy for governments, corporations, and individuals have been thoroughly reviewed. For example, Digital Money lists advantages such as:

  • Greater financial inclusion leading to higher spending power.
  • Reducing cash in transaction flows helping lower operating costs for businesses and the government.
  • Changes in consumer behavior spurring competition.

But, some people don’t think a digital economy is all that it is cracked up to be. The repercussions could outweigh the benefits. There are few regulatory frameworks in place; inherent risks to privacy, demand, and financial integrity exist; and the potential for large monopolies is significant. When anything becomes digital, a Pandora’s box of associated issues arise. Laws can’t keep up and privacy or fraud are generally collateral damage. But, on a global stage, the consequences can be catastrophic.

The transnationality of digital economies has the potential to cause conflict between cyberspace and nation-states increasing the instability of the world’s monetary system. International financial markets are already tenuously tied to one another, economies fully embracing digital operations will only enhance this connectedness. Economic uncertainty fuels social anxiety and can have long-lasting political influence.

Moving Forward and Beyond

The IMF and similar organizations have taken notice and financial directors are urging leaders to develop and implement smart policies that maximize the good and minimize the bad. While these policies will most likely reflect national, regional, cultural, social, and political preferences, international cooperation will be a necessity. Every facet of daily life will be impacted and will have a ripple effect on the global economy. From production, education, socioeconomic factors, everything, and everyone will be impacted. There’s no way around it. And, much of it will be trial and error.

But, we’re in this together. And transparency as well as cooperation will be key to steer the course. Just be prepared for a bumpy ride.


By Dana Hackley
PHD in Communications Media and Instructional Technology.
She is a Public Relations Specialist for Jackson Kelley PLLC where she creates, manages, and executes the firm’s communications strategy across multiple office locations. In addition, she works as an online Academic Coach through Instructional Connections LLC assisting with Communications undergraduate and graduate courses.



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