A cashless Philippines is on the horizon

GCash has become a part of our everyday lives. We use it to buy gasoline, settle our bills in restaurants, and pay for our purchases in stores. We sometimes even use it to pay our utility bills.

GCash is one among the many digital wallets in use around the world. A digital wallet (or electronic wallet) is a financial application that runs on mobile devices. These applications allow you to pay for goods and services using your mobile device without the need to carry cash or credit cards. The contents of a digital wallet are considered legal tender.

Contrary to the belief that China was the first to utilize digital wallets with its WeChat and Alipay apps, the Bahamas was in fact the first country to roll out a digital wallet with its Sand Dollar. China, however, is at the technological forefront of digital payments and where digital wallets are most utilized.

The United States attempted to roll-out its own global digital wallet back in 2019. It will be recalled that Facebook announced its plan to launch its own digital currency called “The Diem” (formerly called “Libra”). Facebook’s announcement caused panic among central banks. Given that Facebook counts one-third of the world’s population as subscribers, its currency was poised to circumvent all international monetary systems. With the Diem in circulation, central banks would be hard-pressed to control money supply, interest rates, inflation, and so on.

To the relief of central banks, Facebook’s Diem was shelved indefinitely. But it highlighted the need for central banks to expedite policies and controls to manage the digital wallet phenomenon. After all, it is only a matter of time before digital wallets become the world’s legal tender.

Eighty-six percent of all central banks in the world are preparing for the widespread use of digital wallets, according to the Bank for International Settlements — the Swiss-based institution that functions as the “central bank for central banks.” It is estimated that by the year 2027, $24 trillion out of the world’s $431 trillion of wealth in circulation, will be in digital form.

It is said that the migration from paper money to digital wallets is as revolutionary as e-mail is in relation to postal mail. What makes it truly revolutionary is its tremendous functionalities.

Transactions through digital wallets allow a smooth transfer of funds across people and across borders without the need to go through banks. It slashes operating costs for banks and eliminates transaction fees on the part of users. Mind you, these fees amount to an average of $350 per bank account holder, per year.

It allows central banks direct visibility of financial transactions and relieves them from relying on banks for reports and data.

It helps in financial inclusion. Digital wallets allow swaths of the unbanked to join the financial system. In times of crisis, the prevalence of digital wallets allows governments to send aid directly to the accounts of affected citizens through their smartphones. It eliminates the need for intermediaries like banks, congressmen, or local government units. It hastens the speed in the delivery of aid while eliminating the possibility of leakage.

Governments can also leverage digital wallets for specific purposes. Let us say the government wants to promote tourism in Palawan. It can create a stimulus program wherein funds are digitally transferred to a particular market segment (e.g., vacationers from Metro Manila and Cebu) who can use it solely for lodging and meals in Palawan and no other purpose. Another example is if the government needs to accelerate the economy during the usual third quarter slump. It can require government agencies to spend large chunks of their budget before Sept. 30, otherwise the funds will expire.

Adoption of digital wallets can also be used by the government to micro-target its disbursements so that every cent is accounted for. In other words, it can eliminate lump-sum fund releases to LGUs or bureaus who are wont to paid invoices.

But just as there are advantages, so are there disadvantages in the use of digital wallets. For one, it opens the door to cybercrime. This is why central banks must be prepared with their controls, checks and balances before widely adopting digital transactions.

Governments can also make it difficult (or even impossible) to make digital donations to causes that are anti-government.

For police states like China, Russia, and North Korea, digital transactions will serve as another means for surveillance as it provides unprecedented insights to one’s movements and way of life.

Countries with problematic relations with the US are keen to accelerate the use of digital wallets. This is because doing so will render obsolete the Society for Worldwide Interbank Financial Telecommunication or the SWIFT system. As we are all aware, the US controls the SWIFT system and it has weaponized it by precluding its enemies from using the platform, thereby cutting them off from global trade. It has done so with Iran and Russia recently.

But will the widespread adoption of digital wallets and digital transactions lead to the US dollar losing its status as the common currency of the world?

Experts do not believe so. Today, over 60% of all foreign bank reserves and nearly 40% of the world’s debts are denominated in US dollars. It will take decades to replace it. By that time, the US would have adopted its own digital currency system.

Although China would like its renminbi to challenge (or replace) the US dollar, experts say it is not likely to happen. This is because it is widely known that China manipulates the movement of the renminbi to prevent capital flight and currency fluctuations from undermining its export-driven economy. Until it stops doing so and allows the market forces to dictate the renminbi’s true value, international adoption of the Chinese currency will be limited, at best.

GCash is just the start of the digital wallet wave. Soon, digital wallets will become our main means for financial transactions. We will use it not only for small purchases but also for buying cars, property, stocks, and the settlement of contracts. The ball is rolling — a cashless society is on the horizon.