Abstract (Document Summary)
Cash imposes large costs on society, yet it is hard to envision moving to an entirely cashless society. If people cannot get rid of cash, then they need to change it in a way that makes it less costly for all to handle. A new kind of "smart banknote" that can be activated or deactivated electronically could be created. You would transfer value from a banknote to and from your bank account, right from your mobile handset. Deactivated cash could be transported cheaply and instantaneously; stores could make their accumulated cash balance vanish at will by simply deactivating it; and bank customers would be able to convert their bank account into cash -- or vice versa -- anywhere, anytime. With these new smart banknotes, mobile banking could flourish in developing countries without requiring complex and costly cash agent networks. So far, all attempts to eradicate cash by replacing it with electronic forms of money have failed.
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