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Guest Essay

Cash Will Soon Be Obsolete. Will America Be Ready?

By Eswar Prasad

Dr. Prasad is a professor of trade policy at Cornell University and the author of a forthcoming book on digital currencies.

When was the last time you made a payment with dollar bills?

Some people still prefer to use cash, perhaps because they like the tactile nature of physical currency or because it provides confidentiality in transactions. But digital payments, made with the swipe of a card or a few taps on a cellphone, are fast becoming the norm .

To keep their money relevant, many central banks are experimenting with digital versions of their currencies. These currencies are virtual, like Bitcoin; but unlike Bitcoin, which is a private enterprise, they are issued by the state and function much like traditional currencies. The idea is for central banks to introduce these digital currencies in limited circulation — to exist alongside cash as just another monetary option — and then to broaden their circulation over time, as they gain in popularity and cash fades away.

China , Japan and Sweden have begun trials of central bank digital currency. The Bank of England and the European Central Bank are preparing their own trials. The Bahamas has already rolled out the world’s first official digital currency.

The U.S. Federal Reserve, by contrast, has largely stayed on the sidelines. This could be a lost opportunity. The United States should develop a digital dollar, not because of what other countries are doing, but because the benefits of a digital currency far outweigh the costs.

One benefit is security. Cash is vulnerable to loss and theft, a problem for both individuals and businesses, whereas digital currencies are relatively secure. Electronic hacking does pose a risk, but one that can be managed with new technologies. (As it happens, offshoots of Bitcoin’s technology could prove helpful in increasing security.)

Digital currencies also benefit the poor and the “unbanked.” It is hard to get a credit card if you don’t have much money, and banks charge fees for low-balance accounts that can make them prohibitively expensive. But a digital dollar would give everyone, including the poor, access to a digital payment system and a portal for basic banking services. Each individual or household could have a fee-free, noninterest-bearing account with the Federal Reserve, linked to a cellphone app for making payments. (About 97 percent of American adults have a cellphone or a smartphone .)

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The future of money: a complete revolution.

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A Complete Revolution

When I first started investing in fintech companies in 2000, there was one main idea: that an analog sector would eventually become digital. The potential was obvious: here was a multi-trillion dollar industry, filled with atoms (think bank branches, paper documents, human labor, etc.), when all it ever needed was bytes. The transition to digital has and will reduce the friction and transaction costs of buying and using financial services, ultimately to zero.

Perhaps five years ago, the next leg of the journey became obvious. Once financial services were digital, they no longer needed to exist as discrete products; they could become embedded in software that consumers and businesses use all day long, and with which they have a durable and data-rich relationship. We are early in that process, and it requires imagination to see where it ends. For a while, it’s just going to feel like everyone we do business with wants to offer us a debit card, make us a loan or help us save 15% on our car insurance.

Eventually, though, when these products and services are all fully digital and embedded, the cognitive load of opening and managing these accounts will go away, as the operations are executed and automated by the software in which they are integrated.

Even more recently, with the mainstreaming of crypto and Web3, the final piece of the puzzle has snapped into place: over the next 30 years, financial services will go from centralized to decentralized, completing the revolution.

You Are Here: The DeFi Revolution

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One reason that we have such fixed notions of what financial services can be is because of their analog history. When a product or service has high frictional costs, it leads to standardization, a phenomenon we have seen in other industries. When automotive manufacturing went from primitive industrialization to modern factories, we went from the Model T in just one color to infinite combinations of automobile makes, models, and features. 

But another reason is that financial services is highly centralized, and the rules of the road are established and maintained by regulators, financial institutions, and their collective associations. Your debit card is built on the back of and fixed in place by DDA regulations, debit card switching network agreements, ATM standards and specifications, negotiated and regulated interchange schemes, etc. And that’s for a relatively risk-free product; the strictures on what your mortgage can look like make your debit card look like a party animal. 

When your money instead lives in a set of cryptographically secure wallets, the full flower of human imagination can be brought to bear in determining the potential of those accounts.

For this digital, embedded, and decentralized world to reach its full potential, there are meaningful problems to be solved. We must be able to establish identity, at point of transaction and over time, even if pseudonymous. We must have real time and persistent credit risk management, for people, businesses and for specific obligations between and among them. We must have reliable cryptographic security, in a world without central counterparties to resolve disputes. We must solve money’s supply chain problem, requiring robust and time-tested capital allocation algorithms, so that excess liquidity in one place can be a source of liquidity elsewhere, in real time.

Once identity is solved, credit risk becomes easier. You can’t commit fraud or default on your debt just by wriggling free into the ether; your credit history is immutable and follows you everywhere. In a fully transparent world - even if pseudonymous - willingness to pay becomes a given, and so the analysis can focus on ability to pay. 

In a fully liquid world, where capital comes from billions of individuals, businesses, and institutions, intermediated by hundreds of allocation protocols, people will no longer have liquidity problems. All their assets and future cash flow streams can be evaluated and the value time-shifted to them instantly, 24/7.

They can still, of course, have net worth problems, but increasingly money will be a probabilistic cloud. What is a better estimate of your financial worth: the balance of your bank account, or the present value of your future earnings? Those earnings obviously have different levels of certainty. Increasingly, you can get access to your already-earned wages. Why not the wages you’ll earn next week, with only slightly higher expense? Where does that end? 

Depending on the discount rate of your future earnings, is that probabilistic money better kept as future earnings (yielding nothing), or invested in a solar array in Ghana? What steps can you take to inflect the curve of those future earnings? As you sit here today, reading this, is your actual net worth going up because of the power of these ideas? (That last one is strictly rhetorical; obviously, the answer is yes.)

The transition from an analog, productized and centralized industry to a digital, embedded and decentralized one - underpinned by advances in identity, risk management, information security, and the globalization and atomization of liquidity - leads to an industry characterized by automation, abundance and creativity, displacing the friction, cognitive load, and conformity of the past. We will have financial relationships with all our commercial counterparties; we will have nearly as many wallets as we have transactions.

By 2050: The Future of Money

So let’s turn to those wallets. Merchants of all types will present customers with two main options: store money with me and I will reward you, or pay me later with little/no expense. As a consumer moves through their commercial life, he or she will constantly be flipping back and forth between net borrower or lender to their counterparties, depending on other calls on their capital and the quality of the deals on offer. 

A consumer could, if pressed, verbalize their current situation or characterize changes to it - e.g., “I just swept all my merchant balances and will leverage BNPL offers for the next three weeks, while also pulling down my next quarter’s wages, so that I can allocate capital into the Latin American transportation sector given a short term outsized return there.” 

But these choices will generally not be overt or even conscious. Smaller merchants, similarly, will not have sophisticated treasury teams managing their liquidity and structuring these offers; algorithms, protocols and global pools of liquidity serve as their back office, as well.

Which leads to the next question: what’s in those wallets? By 2040, we will be done with the bad trade that is fiat currency, where we give our capital for free to various governments for the privilege of having it diluted by the tax of inflation. Rather than our current conception of money - a token that is a representation of an entry in a central bank ledger - our assets will be 100% invested at all times, and we will shift those assets around between and among counterparties, who can instantly (and without cost) shift between various stablecoins. 

As noted, money has historically had a supply chain problem in an analog, productized and centralized world, causing us to store it in various expensive and inefficient depots around our lives; in the future, money will be Just-In-Time.

Deep Dive On Wallets: Transactional, Stored Value & Investment

What are governments and banks to do about it? As we are seeing now, the first instinct of governments will be to wield sovereign power to retain their prerogatives; the first instinct of banks is to leverage regulatory capture to retain theirs. Eventually, it will grow more nuanced. Some countries will pursue open strategies - at first smaller countries, but hopefully over time the United States, as well. 

Many will perceive Web3 as the enemy forever. This distinction will, over time, create a new Cold War. Banks have a real opportunity in this new world, as well, to provide the underlying rails in certain cases, and the curation and navigation layers, for those truly progressive institutions who are first to acknowledge and embrace decentralization. Those who are late to embrace this revolution will simply go away or be nationalized.

Implications For Governments & Financial Institutions

 Venture capital investing in fintech has gone nuts lately. It looks like the industry will invest over $50B in private fintech companies this year alone, which will mean a three year total of over $100B. How can that make sense? Of course, perhaps it doesn’t; there is exuberance everywhere, and maybe it’s simply a bubble. 

But let’s look at another big number: $800B. That’s the annual net income of the global financial services industry. At mean S&P PE multiples, that’s worth $12 trillion of enterprise value. I’ve come to believe that this is the size of the prize, and if you believe that, the investment levels can make sense. 

Increasingly, fintech isn’t just about stealing the incremental customer, or participating in the evolution of the industry from analog to digital. It is a fundamental overthrow of how things have been done historically: a complete revolution.

With gratitude to Tina Dimitrova, Ashley Paston, Merritt Hummer, Stefan Cohen and all of my fintech colleagues at BCV.

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The Crypto Question: Bitcoin, Digital Dollars, and the Future of Money

• Since the creation of bitcoin in 2009, cryptocurrencies have exploded in popularity and are today collectively worth more than $1 trillion.
• Critics say a lack of oversight has contributed to volatility in the nascent industry, but regulators have begun to catch up.
• M eanwhile, many governments are seeking to capitalize on the technology that powers cryptocurrencies by investing in their own digital currencies.

Introduction

In just over a decade, cryptocurrencies have grown from digital novelties to trillion-dollar technologies with the potential to disrupt the global financial system. An increasing number of investors now hold bitcoin and hundreds of other cryptocurrencies as assets and use them to buy a swath of goods and services, such as software, digital real estate, and illegal drugs.

To their proponents, cryptocurrencies are a democratizing force, wresting the power of money creation and control from central banks and Wall Street. Critics, however, say that cryptocurrencies empower criminal groups, terrorist organizations, and rogue states while stoking inequality, suffering from drastic market volatility, and consuming vast amounts of electricity. Regulations vary considerably around the world, with some governments embracing cryptocurrencies and others banning or limiting their use. As of January 2024, 130 countries, including the United States, are considering introducing their own central bank digital currencies (CBDCs) to compete with the cryptocurrency boom.

What are cryptocurrencies?

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So called for their use of cryptography principles to mint virtual coins, cryptocurrencies are typically exchanged on decentralized computer networks between people with virtual wallets. These transactions are recorded publicly on distributed, tamper-proof ledgers known as blockchains . This open-source framework prevents coins from being duplicated and eliminates the need for a central authority such as a bank to validate transactions. Bitcoin, launched in 2009 by the pseudonymous software engineer Satoshi Nakamoto, is by far the most prominent cryptocurrency, and its market capitalization has peaked at more than $1 trillion. Numerous others, including Ethereum, the second-most popular, have proliferated in recent years. 

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Cryptocurrency users send funds between digital wallet addresses. These transactions are then recorded into a sequence of numbers known as a “block” and confirmed across the network. Blockchains do not record real names or physical addresses, only the transfers between digital wallets, and thus confer a degree of anonymity on users. Some cryptocurrencies, such as Monero , claim to provide additional privacy. However, if the identity of a wallet owner becomes known, their transactions can be traced. 

Bitcoin “miners” earn coins by solving complex math problems to organize these blocks, thereby validating transactions on the network; the process requires a system known as “ proof of work .” Many cryptocurrencies use this method, but Ethereum and some others instead use a validation mechanism known as “ proof of stake .” In bitcoin’s case, a transaction block is added to the chain every ten minutes, at which point new bitcoin is awarded. (The reward decreases steadily over time.) The total supply of bitcoin is capped at twenty-one million coins, but not all cryptocurrencies have such a constraint.

The prices of bitcoin and many other cryptocurrencies vary based on global supply and demand. However, the values of some cryptocurrencies are fixed because they are backed by other assets, thus earning them the name “stablecoins.” While these coins tend to claim a peg to a traditional currency, such as $1 per coin, many such currencies were knocked from their pegs during a spate of volatility in 2022.

Why are they popular?

Once dismissed as a fringe interest of tech evangelists, cryptocurrencies—particularly bitcoin—have skyrocketed to mainstream popularity and trillion dollar valuations . In November 2021, the price of bitcoin surged to more than $60,000 for the first time, though it has since fallen. As of mid-2023, an estimated 17 percent of U.S. adults polled by the Pew Research Center had invested in, traded, or used cryptocurrency.

Different currencies have different appeals, but the popularity of cryptocurrencies largely stems from their decentralized nature: They can be transferred relatively quickly and anonymously, even across borders, without the need for a bank that could block the transaction or charge a fee. Dissidents in authoritarian countries have raised funds in bitcoin to circumvent state controls, including to avoid U.S. sanctions on Russia . 

Some analysts say that digital assets are primarily tools for investment. People buy cryptocurrencies “because of a speculative belief that these tokens are going to go up in the future, because a new future is being built on the blockchain,” says CFR Senior Fellow Sebastian Mallaby. Some bitcoin proponents view the cryptocurrency as a hedge against inflation because the supply is permanently fixed, unlike those of fiat currencies, which central banks can expand indefinitely. However, after bitcoin plummeted amid stock market volatility in 2022, many experts questioned this argument . The valuation of other cryptocurrencies can be harder to explain, though many are associated with a larger project within the digital asset industry. Some cryptocurrencies, such as Dogecoin, were created as jokes, but have retained value and garnered investment from high profile investors.

In countries with historically weak currencies, including several Latin American and African countries, bitcoin has become popular with populist leaders. In 2021, El Salvador made waves by becoming the first country to make bitcoin legal tender (residents can pay taxes and settle debts with it), though less than 15 percent of people had used it for that purpose in 2023, according to a poll by Central American University. 

The price of bitcoin and other cryptocurrencies fluctuates wildly, and some analysts say this limits their usefulness as a means of transaction. (Most buyers and sellers don’t want to accept payment in something whose value can change dramatically from day to day.) Nevertheless, some businesses accept bitcoin.

Experts say stablecoins could be more effective than other cryptocurrencies as a form of payments. The value of stablecoins is, as their names implies, relatively stable, and they can be sent instantly without the transaction fees associated with credit cards or international remittance services such as Western Union. In addition, because stablecoins can be used by anyone with a smartphone, they represent an opportunity to bring millions of people who lack traditional bank accounts into the financial system. However, they have drawn increased scrutiny from regulators, especially after several stablecoins sunk below their $1 pegs during 2022’s market volatility. 

What is “DeFi”?

Cryptocurrencies and blockchains have given rise to a new constellation of “ decentralized finance ” or DeFi businesses and projects. Essentially the cryptocurrency version of Wall Street, DeFi aims to offer people access to financial services—borrowing, lending, and trading—without the need for legacy institutions such as banks and brokerages, which often take large commissions and other fees. Instead, “ smart contracts ” automatically execute transactions when certain conditions are met. 

Most DeFi apps are built on the Ethereum blockchain. Because of its usefulness in tracking transactions, blockchain technology has a range of potential applications beyond cryptocurrency, experts say, such as facilitating international trade [PDF].

“You can imagine a new kind of financial system being constructed out of blockchain-based tokens that have advantages over the old, centralized kinds of money,” says CFR’s Mallaby. “You trust the code, and you trust the blockchain and the decentralized ledger, and it’s a new way of organizing finance.”

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Are Cryptocurrencies Still the Future of Money?

What challenges has this created.

Cryptocurrencies have also given rise to a new set of challenges for governments to contend with, including concerns over criminal activity, environmental harms, and consumer protection. 

Illicit activities. In recent years, cybercriminals have increasingly carried out ransomware attacks, by which they infiltrate and shut down computer networks and then demand payment to restore them, often in cryptocurrency . Drug cartels and money launderers are also “increasingly incorporating virtual currency” into their activities, according to the U.S. Drug Enforcement Agency (DEA). U.S. and European authorities have shut down a number of so-called darknet markets—websites where anonymous individuals can use cryptocurrency to buy and sell illegal goods and services, primarily narcotics. Critics say these enforcement efforts have fallen short , exemplified by the theft of more than $1 billion in cryptocurrency by a North Korean hacking group in 2022.

Terrorism and sanctions evasion. The primacy of the U.S. dollar has provided the United States unrivaled power to impose crippling economic sanctions—which states including Iran, North Korea, and Russia are increasingly using cryptocurrency to evade. Meanwhile, terrorist groups such as the self-proclaimed Islamic State, al-Qaeda, and the military wing of the Palestinian organization Hamas also traffic in cryptocurrency. 

Environmental harms. Bitcoin mining is an enormously energy-intensive process: the network now consumes more electricity than many countries . This has sparked fears about the cryptocurrency’s contribution to climate change. Cryptocurrency proponents say this problem can be solved using renewable energy; El Salvador’s president has pledged to use volcanic energy to mine bitcoin, for example. Environmental concerns reportedly prompted Ethereum’s move to a proof of stake model, which uses less energy.

Volatility and lack of regulation. The rapid rise of cryptocurrencies and DeFi enterprises means that billions of dollars in transactions are now taking place in a relatively unregulated sector, raising concerns about fraud, tax evasion , and cybersecurity , as well as broader financial stability. If cryptocurrencies become a dominant form of global payments, they could limit the ability of central banks, particularly those in smaller countries, to set monetary policy through control of the money supply. 

After high levels of volatility diminished the value of several prominent cryptocurrencies in 2022, a handful of crypto firms were unable to pay back their lenders, which were primarily other crypto firms. Many borrowers and lenders declared bankruptcy, including FTX, at the time the world’s third-largest cryptocurrency exchange. The collapse of FTX and other firms resulted in tens of billions of dollars in losses to investors and led some experts to call for a complete crypto ban , though traditional financial firms were relatively unscathed.     

What are governments doing about this?

Many governments have taken a hands-off approach to crypto, but its rapid ascent and evolution, coupled with the rise of DeFi, has forced regulators to begin crafting rules for the emerging sector . Regulations vary widely around the world, with some governments embracing cryptocurrencies and others banning them outright. The challenge for regulators, experts say, is to develop rules that limit traditional financial risks without stifling innovation. 

In the United States, policymakers have moved to regulate some cryptocurrencies and the emerging DeFi sector. In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the first set of exchange-traded funds (ETF) that include bitcoin, granting the cryptocurrency entry into the traditional securities market. However, cryptocurrencies do not fit neatly into the existing regulatory framework, creating ambiguity that lawmakers will likely have to resolve. SEC Chairman Gary Gensler has called the cryptocurrency sector a “Wild West,” and compared it to the 1920s, before the United States had securities laws; he has urged Congress to give the SEC greater oversight over bitcoin and other cryptocurrencies. Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen have both called for stronger regulations of stablecoins. But regulators have thus far been reluctant to extend crypto investors the same protections that exist in more traditional finance, such as deposit insurance. “If you buy crypto-assets and the price goes to zero at some point, please don’t be surprised and don’t expect taxpayers to socialize your losses,” the Federal Reserve Board of Governors’ Christopher J. Waller said in 2023.

To limit illicit activities, authorities have targeted the exchanges that allow users to convert cryptocurrencies to U.S. dollars and other national currencies. Under pressure from regulators , major exchanges including Coinbase and Gemini adhere to “know your customer” and other anti–money laundering requirements. Law enforcement and intelligence agencies, meanwhile, are learning to leverage the traceability of most cryptocurrencies by using blockchains to analyze and track criminal activity. For example, some of the ransom paid to the Colonial Pipeline hackers was later recovered by the FBI. In August 2022, the Treasury Department announced a crackdown on so-called cryptocurrency mixers that criminals can use to anonymize transactions on the blockchain, calling them a “threat to U.S. national security.”

China, which accounts for most of the world’s bitcoin mining, has moved aggressively to crack down on cryptocurrencies. In September 2021, Chinese authorities announced a sweeping ban on all crypto transactions and mining, causing the price of some cryptocurrencies to fall sharply in the immediate aftermath. According to the Atlantic Council, at least eight other countries (Algeria, Bangladesh, Bolivia, Morocco, Nepal, Pakistan, Saudi Arabia, and Tunisia) have banned cryptocurrencies , while dozens more have sought to restrict adoption of digital assets. However, such restrictions are hard to enforce, and crypto exchanges have generated tens of billions in revenue from countries with cryptocurrency bans. Meanwhile, most other governments have so far taken a relatively limited approach.

What is a central bank digital currency? 

In an effort to assert sovereignty, many central banks, including the U.S. Federal Reserve , are considering introducing their own digital cash, known as a central bank digital currency (CBDC). For proponents, CBDCs promise the speed and other benefits of cryptocurrency without the associated risks. Scores of countries—together representing more than 98 percent of the global economy—are exploring CBDCs . Eleven countries have fully launched CBDCs. All are lower-income and ten are in the Caribbean (Nigeria is the eleventh). In 2023, China began counting its piloted CBDC in official currency circulation calculations, though the digital yuan represented just 0.1 percent of central bank cash and reserves. In the United States, there is reportedly disagreement among Fed officials over the need for a digital dollar. 

One way to implement CBDCs would be for citizens to have accounts directly with the central bank [PDF]. This would give governments powerful new ways of managing the economy—stimulus payments and other benefits could be credited to people directly, for example—and the central bank’s imprimatur would make CBDCs a safe digital asset to hold. But their introduction could also create new problems, experts say, by centralizing an enormous amount of power, data, and risk within a single bank and potentially compromising privacy and cybersecurity. 

Some experts say the potential for CBDCs to cut out commercial banks as intermediaries carries risks, because these banks perform a critical economic role by creating and allocating credit (i.e., making loans). If people chose to bank directly with the Fed, that would require the central bank to either facilitate consumer borrowing, which it might not be equipped to do, or find new ways of injecting credit. For these reasons, some experts say private, regulated digital currencies are preferable to CBDCs.

Recommended Resources

In this 2008 paper [PDF], pseudonymous engineer Satoshi Nakomoto proposes Bitcoin, the first cryptocurrency.

At this CFR event, SEC Chair Gary Gensler discusses cryptocurrencies and the role of U.S. capital markets in the global economy.

The Economist examines the potential benefits and risks of DeFi .

For Foreign Affairs , American University’s Hilary Allen makes the case for banning crypto.

The Atlantic Council tracks the status of CBDCs around the world.

Ankit Panda contributed to this Backgrounder. Will Merrow created the graphics for this Backgrounder.

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The Future of Money

Money's destiny is to become digital. Throughout the ages physical money in the form of objects, coins and notes has increasingly been replaced by more abstract means of payment such as bills of exchange, cheques and credit cards. In the years to come that trend to virtual money will continue apace. As technological advances in ICT and biometrics come on-stream, as intangibles progressively become the primary source of value-added in the burgeoning knowledge economy, and as the public at large come to grasp the advantages of digital transactions, virtual forms of payment will dominate. How quickly will this happen on a major scale, and will cash disappear altogether? How will it affect our daily lives? Will it deepen already existing rifts in society? Does virtual money threaten control of the money supply, raising the spectre of greater inflationary risks? Or will it put central banks out of business? This book tackles these and many other critical questions, offering timely suggestions on why and how to make the transition to the world of digital money.

17 May 2002 171 pages English Also available in: French

https://doi.org/10.1787/9789264195929-en 9789264195929 (PDF)

Author(s): OECD

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The Future of Money and Its Implications for Society, Central Banks, and the International Monetary System

This new wave of financial innovations has broad implications for society, banking, and central banking: Digital platforms can ease entry for financial services providers, increase transactional efficiency, and widen access to and participation in the financial system. They could also decrease the use of cash and alter the U.S. dollar's role as today's vehicle currency.

Eswar S. Prasad is the Nandlal P. Tolani Senior Professor of Trade Policy in the Dyson School at Cornell University, a senior fellow and New Century Chair in International Economics at the Brookings Institution, and a research associate at the National Bureau of Economic Research. This lecture draws on his latest book, The Future of Money: How the Digital Revolution is Transforming Currencies and Finance .

Economists are storytellers at heart. So I have for you today a story of remarkable technological innovation, some unfulfilled promises, and unintended consequences. The story, of course, revolves around money, which makes it especially appropriate that I'm giving this lecture here today. I am very privileged to be following in the footsteps of many distinguished people who have delivered the Homer Jones Memorial Lecture, which, after all, is to honor somebody who had a great deal to do with the development of monetary economics and thinking about how money affects us.

The story I have for you today is going to revolve around how money is going to be reshaped: in the way we think about it, the way we relate to it, and the way it helps us organize our economic activities. And it's going to go through a lot of terrain. We'll start by thinking a little bit about basic financial innovations, then delve into the world of cryptocurrencies (including Bitcoin and much more), and then talk about the possibility that we might have digital versions of the paper currency we are all used to. But then we'll think about what all of this means for financial markets and institutions, for central banks such as the Fed, and, indeed, for the international monetary system. But it's not just going to be about finance and economics. It's ultimately going to have some implications for thinking about how we organize society and our day-to-day interactions. 

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The Future of Money - speech by Mark Carney

In a speech to the inaugural Scottish Economics Conference, Bank of England Governor, Mark Carney, considers the future of money, and specifically how developments in money and payments technologies could transform our economy in ways good and bad.

Mark Carney

Former Governor, Bank of England from 2013 to 2020

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The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance Hardcover – September 21, 2021

An Economist Best Book of the Year A Financial Times Best Book of the Year A Foreign Affairs Best Book of the Year A ProMarket Best Political Economy Book of the Year One of The Week ’s Ten Best Business Books of the Year A cutting-edge look at how accelerating financial change, from the end of cash to the rise of cryptocurrencies, will transform economies for better and worse. We think we’ve seen financial innovation. We bank from laptops and buy coffee with the wave of a phone. But these are minor miracles compared with the dizzying experiments now underway around the globe, as businesses and governments alike embrace the possibilities of new financial technologies. As Eswar Prasad explains, the world of finance is at the threshold of major disruption that will affect corporations, bankers, states, and indeed all of us. The transformation of money will fundamentally rewrite how ordinary people live. Above all, Prasad foresees the end of physical cash. The driving force won’t be phones or credit cards but rather central banks, spurred by the emergence of cryptocurrencies to develop their own, more stable digital currencies. Meanwhile, cryptocurrencies themselves will evolve unpredictably as global corporations like Meta and Amazon join the game. The changes will be accompanied by snowballing innovations that are reshaping finance and have already begun to revolutionize how we invest, trade, insure, and manage risk. Prasad shows how these and other changes will redefine the very concept of money, unbundling its traditional functions as a unit of account, medium of exchange, and store of value. The promise lies in greater efficiency and flexibility, increased sensitivity to the needs of diverse consumers, and improved market access for the unbanked. The risk is instability, lack of accountability, and erosion of privacy. A lucid, visionary work, The Future of Money shows how to maximize the best and guard against the worst of what is to come.

• Print length 496 pages
• Language English
• Publisher Belknap Press: An Imprint of Harvard University Press
• Publication date September 21, 2021
• Dimensions 6.12 x 1.6 x 9.25 inches
• ISBN-10 0674258444
• ISBN-13 978-0674258440
• See all details

From the Publisher

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About the author, product details.

• Publisher ‏ : ‎ Belknap Press: An Imprint of Harvard University Press (September 21, 2021)
• Language ‏ : ‎ English
• Hardcover ‏ : ‎ 496 pages
• ISBN-10 ‏ : ‎ 0674258444
• ISBN-13 ‏ : ‎ 978-0674258440
• Item Weight ‏ : ‎ 2.04 pounds
• Dimensions ‏ : ‎ 6.12 x 1.6 x 9.25 inches
• #159 in Digital Currencies
• #191 in Banks & Banking (Books)
• #194 in Money & Monetary Policy (Books)

About the author

Eswar s. prasad.

Eswar Prasad is the Tolani Senior Professor of Trade Policy at Cornell University. He is also a Senior Fellow at the Brookings Institution, where he holds the New Century Chair in International Economics, and a Research Associate at the National Bureau of Economic Research. He was previously chief of the Financial Studies Division in the International Monetary Fund’s Research Department and, before that, was the head of the IMF’s China Division.

Prasad has testified before various U.S. Congressional committees, including the Senate Finance Committee and House Committee on Financial Services. He was a member of the analytical team that drafted the 2008 report of the High-Level Committee on Financial Sector Reforms set up by the Government of India. He serves on an Advisory Committee to India’s Finance Minister and is the Lead Academic for the DFID-LSE International Growth Center’s India Growth Research Program. He is the creator of the Brookings-Financial Times index of world economic activity (TIGER: Tracking Indices for the Global Economic Recovery; www.ft.com/tiger). His op-ed articles have appeared in the Financial Times, Harvard Business Review, International Herald Tribune, New York Times, Wall Street Journal, Washington Post, and numerous other newspapers.

Eswar Prasad’s previous book, Emerging Markets: Resilience and Growth Amid Global Turmoil (with M. Ayhan Kose; Brookings Institution Press), was published in December 2010. His extensive publication record includes articles in top academic journals as well as numerous collected volumes. He has co-authored and edited numerous books and monographs, including on financial regulation and on China and India. His research interests include the macroeconomics of financial globalization; financial regulation, monetary policy frameworks and exchange rate policies in emerging markets; and the Chinese and Indian economies.

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The Future of Money

Peter Cade/The Image Bank/Getty Images

• U.S. Economy
• Supply & Demand
• Archaeology
• Ph.D., Business Administration, Richard Ivey School of Business
• M.A., Economics, University of Rochester
• B.A., Economics and Political Science, University of Western Ontario

As more and more people rely on electronic rather than tangible forms of money on a day-to-day basis and the world's financial systems appear to become more and more complex, many are left to ponder the future of money and currency. 

The Future of Paper Money

It's not likely that paper money will completely disappear at any time in the near future. It is true that electronic transactions have become more and more common over the last few decades and there is no reason why this trend will not continue. We may even get to the point where paper money transactions become incredibly rare - for some, they already are! At that point, the tables could turn and what we now consider paper money may actually act as the backing to our electronic currency, the way the gold standard once backed paper money. But even this scenario is difficult to picture, in part because of how we have historically placed a value on paper money .

The Value of Money

The concept behind money dates back to the beginning of civilization. It's no surprise why money caught on amongst civilized people: It was a much more efficient and convenient way to transact business as opposed to bartering with other goods and services. Can you image keeping all of your wealth in something like livestock?

But unlike goods and services, money does not hold an intrinsic value in and of itself. In fact, today, money is merely a piece of specialized paper or numbers on a ledger. While it's important to note that this was not always the case (for much of history, money was minted in coins of metals that held real value), today the system relies on a mutual set of beliefs. That is to say, that money has value because we as a society have assigned it value. In that sense, you can consider money a good with a limited supply and a demand simply because we want more of it. Simply put, we want money because we know that other people want money, so we can trade money for goods and services. This system works because a majority of us, if not all of us, believe in the future value of this money.

The Future of Currency

So if we are already in the future where the value of money is simply the value assigned to it, what has stopped us from moving toward an entirely digital currency? The answer is in large part due to our national governments. We have seen the rise (and falls) of digital or cryptographic currencies like Bitcoin. Some continue to wonder what we're all still doing with the dollar (or the pound, euro, yen, etc.). But beyond the issues of storage of value with these digital currencies, it is difficult to imagine a world in which such currencies replace the national currencies like the dollar. In fact, as long as governments continue to collect a tax, they will have the authority to dictate the currency in which those taxes may be paid.

As for one universal currency, we're not likely to get there anytime soon, though we do suspect that the number of currencies will fall as time goes on and the world becomes more globalized. We already see that happening today like when a Canadian oil firm negotiates a contract with a Saudi Arabian company and the deal is negotiated in American dollars or EU euros , not Canadian dollars. The world could get to the point where there are only 4 or 5 different currencies in use. At that point, we'll likely be battling over standards, one of the largest deterrents to such a global change.

The Bottom Line

What we're most likely to see is the continued growth of electronic transactions for which people will be less willing to pay fees. We will be looking for and inventing newer, lower cost ways to transact with money electronically as we've seen with the rise of services like PayPal and Square. What's most amusing about this trend is that while less efficient in many ways, paper money is still the cheapest form in which to transact: It's free!

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Dealbook | essay: the real competition to virtual currency.

• Mergers & Acquisitions
• Investment Banking
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Essay: The Real Competition to Virtual Currency

BITCOIN enthusiasts may want to study a satirical etching , published in 1792, that is now in a collection at London’s National Portrait Gallery. In one half, titled “French Liberty,” an emaciated French revolutionary gnaws on raw onions. In the other, “British Slavery,” a corpulent Englishman feasts on a giant slab of meat. The etching’s message — that a revolution is a farce if it fails to provide the basics — hangs uneasily over the world of virtual currencies.

For Bitcoin or its peers to emerge from their niche, they have to one day provide all the crucial benefits that come with the current system of money. For now, people are forgiving of currency innovations. No one expects fledgling digital money to quickly be the equal of the status quo — a system that has come into existence over centuries. Still, it is not clear that virtual currencies will ever have the strengths and scope of the current system, which, let’s face it, functions nearly all of the time.

The Future of Money

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One big reason we have not had revolutionary forms of new money in recent times is that the current system more or less works. That was even hinted at in the seminal 2008 paper about Bitcoin by Satoshi Nakamoto, the real or made-up name of the currency’s creator or creators. “While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model,” the paper says.

Anyone struggling to understand why digital currencies are not widely used ought to look at consumer behavior. Consumers have no problem rapidly adopting new technologies if they find them attractive. But they get a lot out of the current system. With minimal inconvenience, they can make secure noncash payments online and in stores, and they can do so around the world at any time. The existing system also allows people to store their money safely in insured banks, and those banks have the ability to create new money out of thin air when they lend to other consumers.

The virtual currencies are nowhere near achieving those things, and more to the point, they often do not want to. “As a consumer, not only am I using a real currency, I also have access to credit and access to a secure bank,” said Ed McLaughlin, chief emerging payments officer at MasterCard.

Over the last 30 years, the banking and payments system has not remained static. Credit and debit cards are now widely used, as are A.T.M.s and Internet banking. And the creativity continues as the widespread adoption of mobile phones has spawned easier ways to pay for things and do basic banking. In mid-April, Samsung is expected to release a phone that will allow users to buy items with a PayPal app , using only a finger swipe to verify the transaction. “You can look forward to a world where we don’t have user names and passwords,” Hill Ferguson, chief product officer for PayPal, said.

Virtual currencies are not close to offering such convenience and security on a broad scale. And it may be that the very stability of the current system is what provides the platform for inventing new products. “Innovation happens so much faster when it happens on a strong foundation,” Mr. McLaughlin said.

Consumers did not seem to be uppermost in the minds of Bitcoin’s creators. Instead, they seemed motivated mostly by a desire to reduce the cost of a payments system. Such savings would most likely benefit merchants far more than consumers.

And it is not necessarily the case that virtual currencies, if they ever gain broad acceptance, will ultimately be that much cheaper. One way Bitcoin tries to keep its costs down is by using its own self-reinforced method of transaction verification. The 2008 Nakamoto paper lays out an elegant mechanism by which a potential attacker of the system would instead be induced to protect the system. “He ought to find it more profitable to play by the rules, such rules that favor him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth,” the paper contends.

But that mechanism may not be enough to reach the broader security of existing currencies. In recent weeks, large amounts of Bitcoin have apparently gone missing. And even if a virtual currency proves over time that its own system is secure, governments may demand wider types of compliance — to prevent abuses like money-laundering and fraud — that push up the costs of using it.

“There are real costs that go along with managing those risks,” said Jim McCarthy, global head of innovation and strategic partnerships at Visa.

Many supporters of virtual currencies would naturally resist government interference in their systems. At the same time, the authorities may feel uncomfortable allowing too many transactions in them, especially if they are hard to monitor.

In contrast, one of the advantages of the existing system is that it has long operated within the confines of society. The dollar is embedded in America’s democracy. That gives voters some say over the government entities that back, spend and print the nation’s currency. Law enforcement knows it well and is able to demand that banks provide information on potential criminal activities.

One of the most persuasive arguments for new currencies is that over the years, governments have had a tendency to debase and mishandle existing currencies, leading to financial instability and inflation. Some libertarians support virtual currencies because they stand apart from government interference, like a digital gold standard.

But again, such aspirations show little concern for the needs of ordinary people. The current system was, after all, able to right itself after it nearly failed in 2008. The authorities prevented a grim spiral that could have pushed unemployment even higher than it was after the crisis. The efforts that brought the system back from the brink, including printing money and shoring up the banks, were made possible by the dollar’s inherent flexibility and its roots in America’s democracy.

Virtual currencies may never have the ability to bend during times of emergency, and that may be their undoing or, at least, the reason they do not go far.

The status quo is, of course, imperfect in many ways. There is a chance that some aspects of virtual currencies will be adopted by the current system, making it stronger. But as things stand today, digital money is highly unlikely to become the new status quo. Anyone hoping to feast on Bitcoin may not get anything more than raw onions.

What's Next

Library of Policy Papers

The Future of Money 2022 – Munk School, Policy Discussion Paper

The Innovation Policy Lab at the Munk School has published a discussion paper to focus our conversation on the key themes of the event entitled, "The Future of Money: Innovation, Regulation, and Trust in Open Banking and Digital Currencies." Each participating organization has chosen a thought leader to participate in the morning roundtable discussion at the Munk School helping to inform the policy recommendations that come out of this event as well as inform the keynote panel conversation.

Munk School Research Paper – Final Version 2.0 now available

The Future of Money 2024 – Deloitte, Policy Discussion Paper

Deloitte has published an abbreviated guide to update the major themes from 2022 with this 2024 discussion paper. This paper focuses our roundtable conversation and public keynote panel on the key themes of open banking to produce federal policy recommendations. The goal of the 2024 discussion is to propose change-oriented recommendations to the federal government and regulators in an effort to preserve stability and promote innovation in the financial sector while also proudly rethinking the purpose of money in society.

The Future of AI 2024 – Deloitte, Policy Discussion Paper

Deloitte has published the 2024 discussion paper on AI to focus our roundtable conversation and public AI keynote on the key themes of stewardship, risk, and opportunity for safe AI in society. As we respond to new and emerging forms of machine intelligence in the years to come it is important we think carefully about domestic and international policy choices to mitigate the risks so that we can reap the benefits of this powerful technology.

Essay on Money

Essay generator.

Money, often symbolized by currency, coins, and digital figures, serves as the cornerstone of modern civilization. Its role extends beyond mere transactional utility; it shapes economies, influences societal structures, and impacts individual lives. This essay delves into the multifaceted nature of money, exploring its significance, functions, and implications for both societies and individuals.

The Concept and Evolution of Money

Money, in its essence, is a medium of exchange, a unit of account, a store of value, and sometimes, a standard of deferred payment. Its evolution from barter systems to digital currencies illustrates humanity’s quest for efficiency and reliability in economic transactions. This transition from tangible goods to virtual assets underscores the adaptability and innovation inherent in the concept of money.

The Functions of Money in Society

Money serves several important functions in society, which collectively contribute to the smooth functioning of economies and the facilitation of various transactions. These functions of money are often referred to as the “money functions” and include:

• Medium of Exchange: Money is primarily used as a medium of exchange, meaning it acts as an intermediary in transactions. Instead of bartering goods and services directly, people use money to buy and sell, making transactions more convenient and efficient.
• Unit of Account: Money provides a common measure of value that allows individuals and businesses to assess the worth of goods and services. It simplifies price comparisons and financial planning, facilitating economic decision-making.
• Store of Value: Money functions as a store of value, allowing people to save wealth and transfer purchasing power into the future. Money maintains its value over time, making it a reliable way to store and preserve wealth.
• Standard of Deferred Payment: Money enables individuals and businesses to enter into contracts that involve payments or debts to be settled in the future. It provides a stable and agreed-upon unit for these deferred payments, ensuring that contracts can be honored over time.
• Liquidity: Money is highly liquid, meaning it can be quickly converted into goods or services without loss of value. This liquidity allows individuals and businesses to address unexpected expenses or seize opportunities promptly.
• Facilitates Specialization and Trade: Money facilitates economic specialization, as individuals can focus on producing goods or services they are most efficient at, knowing that they can use money to obtain what they need from others. This specialization and trade boost overall economic efficiency.
• Reduces the Double Coincidence of Wants: In a barter system, both parties in a trade need to desire what the other offers. Money eliminates this requirement, making transactions more feasible and promoting a wider range of economic activities.
• Promotes Economic Growth: The availability of money encourages investment, lending, and borrowing, which are essential for economic growth. Entrepreneurs can access funds to start or expand businesses, leading to increased production and job creation.

Money and Economic Systems

The circulation of money is the lifeblood of any economy. It enables the production, distribution, and consumption of goods and services, driving economic activity. Monetary policies, managed by central banks, play a crucial role in regulating money supply, controlling inflation, and stabilizing economies. The intricate dance between money supply, interest rates, and economic health reflects the profound impact of money on national and global scales.

The Psychological Aspects of Money

Money also wields considerable psychological influence, affecting perceptions, behaviors, and well-being. It is often seen as a symbol of power, status, and success, influencing social dynamics and personal relationships. The pursuit of money, while a motivator for achievement and security, can also lead to stress, greed, and ethical compromises, highlighting the dual-edged nature of money’s psychological impact.

Money and Social Inequality

One of the most contentious aspects of money is its role in creating and perpetuating social inequalities. Wealth distribution is often uneven, leading to disparities in access to resources, opportunities, and life outcomes. These economic divides can result in systemic social issues, including poverty, reduced social mobility, and economic disparities, underscoring the need for equitable financial policies and practices.

The Globalization of Money

The globalization of financial markets has interconnected economies worldwide, allowing money to flow across borders with unprecedented speed and volume. This has facilitated international trade, investment, and economic growth but also introduced vulnerabilities, as financial crises can quickly spread from one country to another, demonstrating the global power and peril of money.

Digital Money and the Future

The advent of digital money, including cryptocurrencies and electronic payments, is transforming the financial landscape. These innovations offer new possibilities for efficiency, accessibility, and security in transactions. However, they also pose challenges related to regulation, privacy, and the digital divide, highlighting the ongoing evolution of money and its implications for the future.

The Moral and Ethical Dimensions of Money

Money, in its influence on human behavior and societal structures, raises important moral and ethical questions. The pursuit of wealth must be balanced with considerations of fairness, justice, and the common good. Ethical financial practices, both at individual and institutional levels, are crucial for fostering a society that values integrity and equity alongside economic prosperity.

In conclusion, Money, a seemingly simple concept, plays a complex and pivotal role in shaping the fabric of modern society. Its evolution from tangible commodities to digital currencies reflects the dynamic nature of human societies and their economies. As a medium of exchange, a measure of value, and a symbol of wealth, money influences not just economic transactions but also social relationships, psychological well-being, and ethical considerations. The future of money, particularly with the rise of digital currencies, promises further transformations in how we understand and interact with this fundamental aspect of our lives. As we navigate these changes, it is imperative to consider not only the economic but also the social, psychological, and ethical dimensions of money. By doing so, we can strive for a world where money serves as a tool for achieving not just prosperity but also equity, justice, and human fulfillment.

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The future of the market : an essay on the regulation of money and nature after the collapse of "actually existing socialism"

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Essay on Money for Students and Children

500+ words essay on money.

Money is an essential need to survive in the world. In today’s world, almost everything is possible with money. Moreover, you can fulfill any of your dreams by spending money. As a result, people work hard to earn it. Our parents work hard to fulfill our dreams .

Furthermore various businessmen , entrepreneurs have startup businesses to earn profits. They have made use of their skills and intelligence in getting an upper hand in earning. Also, the employee sector works day and night to complete their tasks given to them. But still, there are many people who take shortcuts to success and get involved in corruption.

Black Money

Black money is the money that people earn with corruption . For your information corruption involves the misuse of the power of high posts. For instance, it involves taking bribes, extra money for free services, etc. Corruption is the main cause of the lack of proper growth of the country .

Moreover, money that people having authority earns misusing their powers is black money. Furthermore, these earnings do not have proper documentation. As a result, the people who earn this do not pay income tax . Which is a great offense and the person who does this can be behind bars.

Money Laundering

In simple terms, money laundering is converting black money into white money. Also, this is another illegal offense. Furthermore, money laundering also encourages various crimes. Because it is the only way criminal can use their money from illegal sources. Money laundering is a crime, and the people who practice it are liable to go to jail.

Therefore the Government is taking various preventive measures to abolish money laundering. The government is linking bank accounts to AADHAR Card. To get all the transaction detail of each bank account. As a result, the government comes to know if any transaction is from an illegal source .

Also, every bank account has its own KYC (Know your Customer) this separates different categories of income of people. Businessmen are in the high-risk category. Then comes the people who are on a high post they are in the medium-risk category. Further, the last category is of the Employee sector they are at the lowest risk.

Get the huge list of more than 500 Essay Topics and Ideas

White Money

White money is the money that people earn through legal sources. Moreover, it is the money on which the people have already paid the tax. The employee sector of any company always has white money income.

Because the tax is already levied on their income. Therefore the safest way to earn money is in the employment sector. But your income will be limited here. As a result, many people take a different path and choose entrepreneurship. This helps them in starting their own company and make profitable incomes .

Every person in this world works hard to earn money. People try different methods and set of skills to increase their incomes. But it is always not about earning money, it’s about saving and spending it. People should spend money wisely. Moreover, things should always be bought by judging their worth. Because money is not precious but the efforts you make for it are.

Q1. What is Black Money?

A1. Black money is the money that people earn through illegal ways. It is strictly prohibited in our country. And the people who have it can go to jail.

Q2. What is the difference between Black money and White money?

A2. The difference between black money and white money is, Black money comes from illegal earnings. But white money comes from legal sources with taxation levied on it.

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Essay on Importance of Saving Money

Students are often asked to write an essay on Importance of Saving Money in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

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100 Words Essay on Importance of Saving Money

Understanding money.

Money is a tool that helps us meet our needs. It’s important to understand its value at an early age.

Why Save Money?

Saving money is crucial. It helps us prepare for unexpected situations and achieve our goals.

Benefits of Saving

Saving helps us become financially independent and secure. It also teaches us discipline and planning.

How to Save?

Simple steps like cutting down on unnecessary expenses and setting aside a part of our pocket money can aid in saving.

250 Words Essay on Importance of Saving Money

Introduction.

Money is an essential part of our lives, facilitating the exchange of goods and services. One of the most important aspects of money management is saving, a habit that can significantly impact our financial security and future.

The Role of Savings in Financial Stability

Savings act as a safety net in times of financial distress. Unexpected expenses such as medical emergencies, vehicle repairs, or job loss can be easily managed if one has a sound savings plan. It reduces the reliance on credit, thereby minimizing debt and the associated stress.

Savings and Investment Opportunities

Savings also open doors to investment opportunities. The money saved can be invested in stocks, bonds, or real estate, which can generate additional income over time. This concept of compounding can lead to substantial financial growth, helping to achieve long-term goals like buying a home or planning for retirement.

Savings and Financial Freedom

Furthermore, saving money promotes financial freedom. It allows individuals to make choices based on their desires and not just financial constraints. Whether it’s pursuing higher education, starting a business, or traveling the world, a solid savings plan can make these dreams a reality.

In conclusion, the importance of saving money cannot be overstated. It provides financial security, enables investment opportunities, and promotes financial freedom. Cultivating the habit of saving can lead to a financially secure and fulfilling life.

500 Words Essay on Importance of Saving Money

The concept of saving money, financial independence and empowerment.

One of the most significant advantages of saving money is the financial independence it brings. When you save, you essentially create a financial buffer that can help you navigate unexpected expenses or financial emergencies. This independence can lead to a sense of empowerment, as it allows you to make decisions based on your best interests rather than immediate financial constraints. For college students, this could mean having the freedom to pursue internships in their field of interest, even if they’re unpaid, or investing in educational resources that can enhance their academic performance.

Securing the Future

Saving money also plays a crucial role in securing your future. By setting aside a portion of your income, you’re essentially investing in your future self. This could mean being able to afford a down payment on a house, funding your post-graduate studies, or even starting a business. The act of saving money can provide a safety net that allows you to take calculated risks and make significant life decisions without fear of financial ruin.

Mitigating Financial Risks

Encouraging responsible financial behavior.

Lastly, the practice of saving money encourages responsible financial behavior. It necessitates budgeting and conscious spending, skills that are invaluable in managing personal finances. For college students, learning to save money can provide practical experience in financial management, setting the foundation for a future of financial prudence and stability.

In conclusion, the importance of saving money extends beyond the immediate benefits of having extra cash on hand. It’s about financial independence, securing the future, mitigating risks, and fostering responsible financial behavior. It’s a habit that, when cultivated early, can lead to lifelong financial stability and independence. As such, it’s crucial for college students to understand and appreciate the value of saving money, as it’s an investment that yields significant returns in the long run.

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Test Resources

TOEFL® Resources by Michael Goodine

Sample toefl essay – spending money, the question.

Some people like to spend their money as soon as they earn it, while others think it is better to save their money for some time in the future. Which do you prefer? Use specific reasons and examples to support your opinion. Do not use memorized examples.

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The Sample Essay

           Money concerns are a major cause of stress and anxiety in the modern world. In my opinion, it is a really wise idea to save money for the future.  I feel this way for two main reasons, which I will explore in the following essay.

           To begin with, older people are able to make better financial decisions than youngsters due to their experience and maturity.  Young people, who have very little worldliness, are prone to spending their money on products that are mostly useless and which they quickly tire of.  Older people, on the other hand, know which purchases will result in long-term happiness and satisfaction. My own experience is a compelling example of this.  When I was young, I spent a tremendous amount of money on video games and comic books which I enjoyed only for a short time. Later, when I enrolled in university, I did not have enough savings to pay for my tuition, and was forced to take out a significant number of student loans.  Even today, several years after graduation, I regret not saving much money as a teenager. These days I am a lot more conservative when it comes to spending, and carefully consider all of my future expenses.

           Secondly, life is full of unexpected emergencies which can cause a lot of anxiety if we do not have a lot of money saved up.  According to reports in the media, more than seventy-five percent of all bankruptcies in my country are the result of medical bills. I am totally aware that it is humiliating to lose our financial independence in this way.  For example, last year my uncle suffered a major heart attack which required him to undergo very expensive cardiac surgery. He did not have enough money to pay for this procedure, so he had to ask his elderly parents for a loan.  They were able to help him because they had resisted the urge to spend and saved money through their entire lives. He felt extremely embarrassed about begging his parents for assistance, especially as he could have avoided the situation by emulating their frugal behavior.

           In conclusion, I believe that it is better to save money for the future rather than spend it right away.  I feel this way because we gain the ability to make better financial decisions as we mature, and because saving money helps us avoid the humiliating effects of unexpected financial emergencies. (405 words)

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