A Look at the Future of Money

October 12, 2021

What if we said the future of money doesn’t involve paper money at all? Here’s a look at what investors should know.

Did you know that The Wizard of Oz was actually about money? Or at least, so ran a popular theory first put forth in the sixties by a high school teacher called Henry Littlefield, which argues that the Wizard of Oz was actually about monetary policy and the collapse of the Populist Movement in the U.S. at the turn of the twentieth century. Our four adventurers travel the Yellow Brick Road (the gold standard) to reach the Wizard (the president) of Oz (short for ounce) in the Emerald City (the green dollar), fighting off the Wicked Witch of the West (bankers) to get there.

It’s a fun theory that’s since been debunked, but it goes to show just how much people worried about the notion of the transition to cash. In fact, while we now take cash for granted, it has a long history in the U.S. and took decades of fighting to make the leap from the gold standard.

Now, we might be leaving cash behind.

Here’s a look at what the future of money holds, why we’re making the slow transition away from cash, and what you need to know about the future of money.

The Reign of Digital Banking

In 2017, Deloitte forecasted that three billion users would have access to banking services through a smartphone in 2021. That was long before anyone ever heard of COVID-19.

Nowadays, with physical proximity translating to risk, customers and banks alike increasingly rely on digital services for safety, efficiency, and better service. That trend will likely continue to strengthen, even after COVID-19 is over.

It’s not just safer—it’s a better service on both ends of the equation. Customers eliminate the hassle of in-person services, and banks eliminate the cost of office space to provide those services. Many budgeting and investing apps also sync with bank apps, which means you can get all your services contained in your phone.

Mainstreaming Cryptocurrency

Cryptocurrency is a type of digital asset, a decentralized currency not linked to any national currency and not administered by any central bank. Once upon a time, it was the purview of the tin foil hat crowd who wanted to break away from paper money.

We’re probably not getting rid of national currencies any time soon, but cryptocurrency is now a worthwhile investment asset in its own right.

If anything, cryptocurrency is part of the shift toward digital banking services. In a time when everyone is still raw from the hurricane that COVID-19 turned the economy into, the idea of a decentralized currency with greater transparency and immutability has a certain appeal. Many people still don’t trust cryptocurrency, mostly because they don’t understand it, but as we move toward an all-digital system, the blockchain system that cryptocurrency is built on will become the viable future of money to offer security in an equitable (and cashless) society.

The End of Cash

So…is this the end of cash?

The U.S. abandoned the gold standard for paper money on April 20, 1933, when President Franklin D. Roosevelt urged Congress to take up currency reform. This wasn’t FDR’s first crackdown on gold, nor would it be his last, but the U.S. was languishing in the Great Recession and in dire need of an expansionary money policy to revive the economy.

Now, though, we’re leaving paper behind too.

It might sound like a futuristic world, but when you remember the move toward digital banking and the need for online payment systems for security and safety, it’s not so far-fetched at all. Some countries already live almost exclusively cash-free—Sweden was an almost cashless society back in 2017, and these days cash is all but extinct.

That said, not all countries will be quite so swift. For one thing, countries already have more money in circulation than cash (remember, money can be counted digitally, but cash, as in cold hard dollars, is rarer). In fact, only 10.2% of actual currency in circulation is cash—which means 89.8% of currency in the U.S. isn’t cash.

For another, the Treasury and Federal Reserve rely on cash printing and cash circulation to set the economic gears in motion. Without cash, central banks will have to find new ways to drive value of their currency. And because central banks have the exclusive right to print currency (to prevent counterfeiting), banks will have to find new ways to prevent the appearance of forged currency.

Which brings us to the last issue: governments will have to contend with major security, privacy, and even anti-discrimination considerations in the shift away from cash.

Valuing Money

If the notion of a cashless society is still mind-boggling, remember that money is ultimately just an object. The reason we use dollars, liras, rubles, euros, or any other currency instead of, say, seashells or pebbles is because we’ve decided that these objects represent an agreed-upon value.

The difference between cash and objects is that cash doesn’t have intrinsic value the way a horse or a car does. Once upon a time, when cash was made of gold, silver, and copper, it had intrinsic value. These days, though, it’s just numbers on a specialized paper blend. It has value because we as a society agree that it has value, and because the currencies of the world hold value because of a complex network of interlocking economics and politics.

In plain English, we want money because other people want money. The thing is, if we universally agree that a secure digital token holds as much value as a twenty dollar bill, then it has equal spending power.

The Future of Currency

If that’s true, why haven’t we moved to digital currency yet, like Sweden?

To put it simply: our governments.

As long as governments collect taxes (which they will continue to do as long as they administer society), then governments have the power to set currency. Here’s the thing: governments have the sole power to print their national currency. But if we switch to digital currencies, we’re no longer dealing with a specialized paper and ink blend with number sequences. That becomes a security issue, and governments will have to devise a whole new system to prevent hacking and counterfeiting.

That doesn’t mean that we’ll never see digital currencies, but for now, at least, we’re unlikely to move away from national currencies anytime soon. We’re likely to move away from cash within the next several years, though, and that introduces a whole new world of banking concerns—and if we can navigate those, we’ll have the infrastructure we need to operate centralized banking in a purely digital format.

Strengthen Your Portfolio to Weather the Future of Money

The future of money might look like something out of science fiction, but it’s a natural outgrowth of our evolving culture, our changing economy, and our changing understanding of how money works. Here at Masterworks, we believe in making your money work for you so that you can protect your financial future. For us, that means giving average investors the tools to invest in blue-chip art, one of the most profitable alternative investments and the most successful form of passion investing. So if you’re ready to make the most of your money, whatever the future of money may hold, fill out your membership application today.

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