The simple act of using paper to pay for products and services is mostly taken for granted, but paper currencies are a relatively modern financial instrument when seen from a historical perspective. The concept of agreeing on a specific object such as a paper bill to act as a measure of value as well as a means of circulation, accumulation and payment seems simple enough for most people. Nonetheless, it requires a certain degree of technical knowledge to understand the real complexity that goes behind the use of currencies. A countless number of objects have been used as currency along the history of humanity, ranging from seashells to precious metals. We finally stuck to paper money largely because of how much easier and cheaper it is to carry, produce and control.
We owe our capacity to have better and more practical forms of currency largely to technology. As obvious as it might seem now, the invention of printing ended up changing virtually every aspect of life, being one of the key elements that defined modernity. The emergence of internet technologies means a comparable if not much larger leap in technological progress than printing was at the time, and just as printing paved the way for the widespread adoption of paper money, it is logical to assume that in the not-so-far future internet technologies should let us replace paper with digital currencies.
But why would we? You may ask. The simplest possible answer is because we can. Nonetheless, there are more interesting reasons as to why we also should. There is a theory in economics that is often referred to as the “shoe leather cost”. It is a metaphor for the higher costs of currency that come with inflation. The theory points out to the fact that even if the real income of the people in a country can eventually adjust to inflationary effects, having a higher amount of physical currency circulating has a cost. That is, as the metaphor implies, the cost of the shoe leather that wears out as people have to walk more often to the ATM to withdraw their money.
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