Market Report
The Future of Physical vs Digital Currency: Banknotes in a Digital World to 2032
Smithers tracks cash cycle priorities as security printers react to transition from physical to digital currency
LEATHERHEAD, Surrey, UK and AKRON, Ohio, USA – September 7, 2022 – The arrival of cryptocurrencies like central bank digital currencies (CBDC) and Bitcoin, are posing a fundamental challenge for cash cycle operators and the commercial high-security printers (HSPs). For those firms that can successfully pivot, there are new market opportunities however, including the challenge of how to integrate banknotes into a future digital payments economy.
The current state-of-the-art for the market deployment of virtual currencies and other means of electronic payments are profiled, in depth, in the latest report from Smithers – The Future of Physical Vs Digital Currency: Banknotes in a Digital World to 2032. This finds that an array of platforms are quickly finding official and market approval; for example, Pix the instant payment scheme launched by the central bank of Brazil in November 2020, already has 122 million individual and nearly 10 million business users.
In the wake of the Covid-19 pandemic, there is a renewed onus on establishing officially endorsed e-payment technology to build trust, combat fraud, and maximise tax revenue. Adoption is set to accelerate over the next decade. Among the leading digital currency technology platforms scrutinised in Smithers’ research are:
- Distributed ledger technology (DLT)/Blockchain
- Bitcoin and other cryptocurrencies
- Stablecoins – a recently introduced sub-segment of cryptocurrency that aim to achieve stability by pegging these to existing financial assets, such as a fiat currency or commodity
- Mobile payment platforms, such as M-Pesa, and digital authentication software
- Retail CBDCs for use by consumers in everyday purchases
- Wholesale CBDCs designed to enable the finance sector to settle large interbank payments with digital tokenised financial assets in an alternative payment infrastructure.
In 2022, banknote printing remains in a state of flux; print volumes rose markedly during Covid-19; and ongoing uncertainty and inflation are posing direct challenges for central bank cash strategy into the future. Smithers’ analysis goes on to consider how the printing and security features of tomorrow’s banknotes will need to evolve to retain their position in a changing payment landscape.
Overall, the increased use of digital payment will have only a limited impact on physical cash, with the two solutions evolving in parallel. Hard cash will continue to circulate, but often at a slower rate, as lower value transactions increasingly migrate to the digital sphere. Despite this, cash will remain an essential cornerstone as the most popular and easily understood fungible payment solution.
Pooling research and specialist insight from across the cash cycle and banknote supply and design, The Future of Physical vs Digital Currency: Banknotes in a Digital World to 2032 provides an invaluable strategy guide for HSPs and technology providers.