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Could a country (or economic union) run entirely on a currency that's completely digital? And by that, I don't mean that it can be destroyed if the servers are shut down (like a cryptocurrency), but that there are no physical denominations of the currency in circulation (much like a credit or debit card).

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    $\begingroup$ We're pretty close to doing that in reality, actually. If we just made a system were small transactions between normal people could be done electronically (perhaps with a phone app) we could throw away our physical currency tomorrow and be fine. Some countries, at least. $\endgroup$ – Grollo Jul 5 '16 at 13:02
  • $\begingroup$ You should probably ask this on Economics SE as it's a stated goal of some western governments as part of the plan to reduce money laundering. $\endgroup$ – Separatrix Jul 5 '16 at 13:38
  • $\begingroup$ you describing current systems, which difference you propose actually? $\endgroup$ – MolbOrg Jul 5 '16 at 20:59
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    $\begingroup$ "I don't mean that it can be destroyed if the servers are shut down" it should be noted that cryptocurrencies are very resistant. That is because most cryptocurrencies allow anyone to start running a server at anytime, so it is highly decentralized. Given that the less of these servers exist, the higher the economic incentive to start one, it's unlikely they will all be destroyed. $\endgroup$ – PyRulez Jul 6 '16 at 13:03
  • $\begingroup$ @PyRulez Oh, I see! Thanks for the info! $\endgroup$ – Alexader Ferguson Jul 6 '16 at 14:01
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Such a currency exists already - bitcoin.

In any digital currency if ALL servers running related programs/containing related files are shut down the currency will stop working, but if that nation adds a law that all computing systems with more than # processing power must contribute to the bitcoin (or whatever currency you want to use) network that should really not be a possible problem. Such a law is not unrealistic either, given the many other things we are forced to do by law (pay taxes, buy insurances etc.). The currency could easily be incorporated into the operating system and the user wouldn't even notice.

By definition it isn't possible for physical bitcoins to exist and plenty of systems are already in place to easily pay with bitcoin instead of physical money if the seller supports it, in a theoretical world where bitcoin is the only currency (even if it's only in a specific nation) every seller would have to support it or give away their wares for free (I'll let you guess which option they'd choose).

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    $\begingroup$ Bitcoin isn't reliant on such a law. If the government wants computing power they buy a server. Bitcoin works using the computing power from the person making a transaction. If A sends money to B who cares if C is running bitcoin software. $\endgroup$ – Donald Hobson Jul 5 '16 at 16:53
  • $\begingroup$ Sure, but such servers can be expensive, the government's money is better invested in education, healthcare, or other things. This law would free that money for such a purpose. If the cryptocurrency runs on the government's servers there is also a potential issue of trust from the population. Further, that law also solves the problem of redundancy, what if the gov's server break? Or get hacked? How many redundancies can teh gov afford? Fewer than this law would create. And all at no noticeable cost for anyone $\endgroup$ – Annonymus Jul 5 '16 at 16:59
  • $\begingroup$ No need to have dedicated servers. You say like government have to make law to store your money in wallet or creditcard - you already do that just because more convenient. $\endgroup$ – MolbOrg Jul 5 '16 at 20:54
  • $\begingroup$ @MolbOrg That's true, if only digital currency existed by necessity everyone would need to run at least one instance of it (assuming it's similar to bitcoin), but such a law still wouldn't hurt anyone. $\endgroup$ – Annonymus Jul 5 '16 at 21:08
  • $\begingroup$ If we begin making law just because they do not hurt (and you wrong here) , we will be fackuped $\endgroup$ – MolbOrg Jul 5 '16 at 21:21
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Since we're on a site for building fictional worlds, it is clearly possible. There would be problems, but those problems can be overcome, or they can become part of the story/adventure.

The physical coins and bills are just tokens, their intrinsic worth is not related to their face value. Large-denomination coins and bills tend to be worth more than their production costs, small-denomination coins less. There are no fundamental difference between metal, paper, plastic, or digital tokens in this regard.

Physical tokens have advantages for certain transactions.

  • I can give them as a gift with symbolic and monetary value. Giving or receiving a crisp €100 bill feels different than watching my account go from €1,352.48 to €1,452.48.
  • I can have small, untraceable, quick transactions. I can give a beggar 50 cents without giving him any data about me. I can decide to spend 90 cents on a donut or 83 cents on an apple, and nobody has to know if I made the healthy choice or not.
  • I can give or receive them without technical systems. When people forget their wallet or have it stolen, they might be able to borrow some cash from friends or colleagues.
  • I can keep track of the sum of little transactions. I tend to get the same amount from an ATM whenever my wallet looks empty, and if I do that twice in a week I briefly think about what I'm doing and if there were any extraordinary expenses. I would not remember cent-level digital transactions that way until I check the bank statements.

Physical tokens have disadvantages for certain transactions.

  • Carrying large amounts of cash makes me uneasy. What if I forget my wallet? What if it is stolen? A secure digital system would help.
  • These days I get the physical tokens at an ATM and spend them at various shops. Going to the ATM on the way to or from work requires a slight detour. No problem on most days, but I often find that I've automatically taken the direct route. I could save the detour if everything was digital.
  • A digital system might be easier to audit. As a conscientious taxpayer, I approve of systems that make tax fraud or money laundering harder. (But see the privacy concerns, above.)
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  • $\begingroup$ A digital system can be anonymous as well, bitcoin, for example, is. $\endgroup$ – Annonymus Jul 5 '16 at 17:01
  • $\begingroup$ @Annonymus, but would that combine the advantages of both or the disadvantages of both? And with sufficient surveillance, even bitcoins could be tracked. $\endgroup$ – o.m. Jul 5 '16 at 17:23
  • $\begingroup$ It can be an advantage or a disadvantage, I just wanted to point out that it is not necessarily always an advantage gained by using physical currency. While it is true that sufficient surveillance could more or less track identity of bitcoin holders it is possible to raise the level of surveillance arbitrarily high, so unless the populace underestimates the gov's ressources it would always be possible to remain anonymous, if one so wishes $\endgroup$ – Annonymus Jul 5 '16 at 17:28
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Yes, such a system could exist, but...

With a fully digitized currency, some form of physical trading system would likely develop for illicit or 'off book' purchases. Gold and silver are obvious choices to be used. Or foreign currencies, if they still exist. Or perhaps something less obvious, like the pouches pouches of tuna used in some prisons. Whatever it is, there would be some sort of physical trading medium in place.

Look at bitcoin, for example. While its the opposite (an all-electronic option to physical currency), it demonstrates that alternatives develop where there is a void.

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  • $\begingroup$ Not necessarily. That only happens if having a physical currency gives you some advantage. In the case of illicit purchases that is anonymity, but this can be implemented in a digital currency as well. $\endgroup$ – Annonymus Jul 5 '16 at 17:30
  • $\begingroup$ If people completely trusted the privacy of the digital currency, yes, that would lessen the need for physical trade items. I'm unaware of any such systems (certainly not bitcoin). And I find it unlikely a modern government would want such an anonymous source of currency. That defeats the purpose of a fully electronic system - which is to track the currency usage. $\endgroup$ – GrandmasterB Jul 5 '16 at 17:36
  • $\begingroup$ Why do you say that bitcoin is certainly not anonymous? It CAN be if it users value anonymity enough to spend some effort ensuring it. There are also benefits to a digital system other than traceability, like the impossibility of physical theft/losing money or the possibility to access all owned money from (nearly) anywhere. $\endgroup$ – Annonymus Jul 5 '16 at 17:39
  • $\begingroup$ Yes, you can make it more anonymous with care, but thats true of any currency via a system of money laundering. $\endgroup$ – GrandmasterB Jul 5 '16 at 17:51
  • $\begingroup$ That only takes away protection against theft damage control, assuming the system is not hackable it could be impossible to steal it in the first place, which makes damage control redundant. $\endgroup$ – Annonymus Jul 5 '16 at 17:52
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It would be possible if they had some sort of device which they could carry around everywhere which transferred the money between people. Something like a smartphone could be used. The hard thing would get people to switch between physical money and digital. It would be impossible to "print" money because it is all digital so the economy would be much more stable if the government or whatever organisation is running the economy had very tight security. Taxes would be automatically deducted which would help with people not paying taxes and it seems very likely that this sort of system might happen in the future.

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    $\begingroup$ "It would be possible if they had some sort of device which transferred the money between people". This, this and this. $\endgroup$ – Renan Jul 5 '16 at 13:45
  • $\begingroup$ @Renan yeah but like a worldwide object that everybody had to have $\endgroup$ – CrazySlayaNinjaBear Jul 5 '16 at 13:48
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    $\begingroup$ Like a cell phone. $\endgroup$ – Renan Jul 5 '16 at 13:50
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    $\begingroup$ Close to everyone in the world have cell phones. Villages without connection to the power grid in african countries still get them. They make wind mills to charge them. It's such a good tool for communication. $\endgroup$ – Martine Votvik Jul 5 '16 at 13:52
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    $\begingroup$ It would be possible if they had some sort of device which they could carry around everywhere which transferred the money between people. Something like a smartphone could be used. Or a debit/credit card which is purpose built for that. $\endgroup$ – AmiralPatate Jul 5 '16 at 14:17

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