Was with a few friends over the weekend and the topic of digital currencies somehow crept into the conversation (do not as me how, over a weekend) and a comment made by one of them got me thinking.

There appears to be a big drive for digital currency / wallet ( I am not talking about things such as Bitcoin as per se but money in general, hence digital wallets). Our own PM appears to be pushing digital and it seems that plenty of countries and tech players are pushing for it.

The comment went along the lines of ..

You start with £50 note, go into a restaurant, and pay for your meal. The restaurant pays its staff with the £50 note, The staff members then goes to the barber and pays for a haircut with that note. The barber then uses that note to pay his local butchers for some steak. The butcher goes into the supermarket to buy buy the groceries with that note. The supermarket then deposits that note into the bank. The you go to bank and upon withdrawal realise that you have just been handed back that same note a week later.

The thing is that it is still £50 and you can go through unlimited transactions and it will still be £50 at the end.

However now take the situation that you go into the restaurant and pay with a digital currency/wallet, the seller (restaurant in this case) will be charged transaction fees of approx 3% or £1.50. Then for every further transaction a charge of £1.50 is likely to be incurred. Thus £1.50 for the barber, £1.50 for the butcher, £1.50 for the supermarket. Therefore after 30, £50 transactions all that will be left is £5. In other words, £45 has just disappeared (technically to the bank, but they just have a number on the screen) and £5 left for circulation.

So what does this mean for the public and the future ?
Thoughts much appreciated

Isn't this just the same as transaction charges on debit/credit cards, they are digital wallets.

The supermarket will incur a charge for depositing cash at the bank. Commercial accounts operate very differently to those of retail customers. Banking is far from free. Banks would be out of business if it were.

That's a bit of an idealistic story though. Unless the restaurant and the barber and the butcher are paying their employees, landlord and suppliers in cash too, at some point they're going to be taking large amounts of cash to the bank and the bank will charge them a fee for handling it. There's also some not insignificant time and expense associated with cash-based businesses managing cash registers and securing cash.

The British Retail Consortium (BRC) does an interesting annual survey of payments costs for UK retailers; AFAIK the latest one is 2021's:
https://brc.org.uk/media...ayments-survey-2021.pdf
That shows a big jump in cash costs in 2020. While cash remains cheaper per transaction, when you take into account that average cash transactions are smaller, that reckons retailers paid 0.27% to handle cash vs. 0.26% on debit cards.

Maybe no optimal solution; I find it interesting that there are both cash only and cashless only small businesses within a short walk of where we live.

I'm dubious about the idea some new digital currency/wallet tech is going to come along and significantly change this situation. Realistically, that's what your bank account + debit card already provides quite efficiently, and as the BRC document linked above points out, further cost reductions could come from the Payment Systems Regulator simply flexing its existing powers. (Some recent stirring - https://www.psr.org.uk/n...money-on-card-services/ - but apparently from the "nudge" school that thinks just encouraging people to shop around will improve things... and we've seen how well that worked with energy suppliers.)

We could all bank using something like SDRs. Your money is a slice of a currency basket and can be used anywhere in the world.

We could do it tomorrow but...........that sort of monetary union would require some degree of economic and political union


So.....it wont happen