In countries that have efficiently digitized a major part of their financial infrastructure (e.g. many Nordic ones), very few people carry cash. It is safe to assume that a significant part of the cash in use comes either from criminal activities or the black labor market.
The emergence of blockchain and cryptocurrencies shows that digital currencies have some direct benefits for society. Although the next development may be central bank-issued digital currencies (CBDC), the functionality of traceability and programmability demonstrated by the cryptocurrencies will remain for CBDC.
Similar to how the police use mobile phone tracking in their investigations, they may also use CBDC’s traceability to track payments from one person to another. That makes it impossible to conceal payments to, for example, drug dealers and fences.
Not only small fish will struggle; large-scale corruption will also become more difficult to conceal. Not only will it be possible to trace kickback from large public construction projects, it will also be possible to program the digital currency so that the funds allocated to a construction project can only be used for specific purposes and circumstances related to the construction. The ability to track payments will also make it difficult to conduct money-laundering, hide money at tax havens or commit white-collar fraud.
Digital currencies mitigate some of the crime challenges that we have experienced with electronic payments. When we started going cashless in the 1980′ and 1990′, it resulted in reduced crime, as criminals would still target cash and did not yet have the skills to steal electronic money. That has changed as criminals closed the technology gap and learned, for instance, how to attack online stores. However, digital money’s ability to leave a trace and be programmable will again increase these barriers. The question for the future is then: Will criminals find ways to close the technology skill gap again?
