Why does the world need smart banknotes?
- Electronic payments using mobile devices are the most efficient and inevitable future.
- Smart banknotes would gradually replace traditional banknotes and coexist with today’s smartphone technology.
- Since 2010, various companies have been experimenting with the concept of intelligent banknotes, or smart banknotes.
We are moving towards a world without cash. At some point we will say goodbye to all those bits of paper and polymer and move to an electronic alternative. The only problem with these statements is that they have been repeated since the late 1960s.
Today, 60 years later, the money is still there. I predict that it will still be there for another generation. Having said that, I also believe that electronic payments using mobile devices are the most efficient and inevitable future. So how can we facilitate the transition from the cash of the 19th century to the Bitcoin Pro crypto of the smartphones of the 21st century over the next few decades? The answer: the smart banknote.
What is a smart banknote?
Basically, a smart banknote is a traditional banknote on a paper or polymer substrate, which has the additional ability to communicate with an electronic network.
Like today’s banknotes, a smart banknote can operate entirely offline, without a network or electricity. It is denominated and has all the physical properties of a traditional banknote in terms of size, feel, appearance, etc.
However, this hybrid banknote is also equipped with a chip and electronic ink. These attributes allow the smart banknote to connect to an electronic network and record the value of the banknote (the result of the electronic transaction) on its surface, making this information visible offline.
Imagine a $10 note with a chip and an icon that indicates whether the note still retains its value or whether it has been transferred offline over a network. This smart $10 note would circulate from hand to hand like today’s $10 notes, each one knowing whether it has value or not.
A user could, however, connect it to a payment network to make electronic payments or transfers. An „empty“ 10-dollar note, on the other hand, could be reloaded via a network and continue to circulate offline.
Smart banknotes would gradually replace current banknotes and coexist with current smartphone technology until it is no longer needed. Again, the smart banknote is a transitional payment device.
So why would we need smart banknotes?
As mentioned above, an intelligent banknote is needed to bridge the gap between a traditional banknote and purely electronic money. This is particularly important with the deployment of digital central bank currencies (CBDCs) and the efficiency and policy benefits they bring.
A smart banknote can overcome the barriers to implementing a CBDC by combining the advantages of cash and crypto-money. For example :
The unbanked. Many people do not have a bank account necessary to access an electronic network and regularly use crypto-money/CBDC. They depend on cash for their daily transactions, but could periodically use the electronic capabilities of a smart banknote, for example at a retailer or public kiosk.
Lack of Internet access. There are places and times when the internet is not accessible, or even when there is no electricity, making e-money and means of payment useless. Designed to work completely offline, a smart banknote would fill this gap.
The cash industry. There are many industries and people employed in the manufacture, transportation, custody and recycling of cash. Making this sector obsolete would have a great economic impact and cause a major rejection of crypto-money. The production and issuance of smart banknotes would help to maintain this industry as it adapts to cashless payments.