money in the future essay

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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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Does More Money Really Make Us More Happy?

• Elizabeth Dunn
• Chris Courtney

A big paycheck won’t necessarily bring you joy

Although some studies show that wealthier people tend to be happier, prioritizing money over time can actually have the opposite effect.

• But even having just a little bit of extra cash in your savings account ($500), can increase your life satisfaction. So how can you keep more cash on hand?
• Ask yourself: What do I buy that isn’t essential for my survival? Is the expense genuinely contributing to my happiness? If the answer to the second question is no, try taking a break from those expenses.
• Other research shows there are specific ways to spend your money to promote happiness, such as spending on experiences, buying time, and investing in others.
• Spending choices that promote happiness are also dependent on individual personalities, and future research may provide more individualized advice to help you get the most happiness from your money.

How often have you willingly sacrificed your free time to make more money? You’re not alone. But new research suggests that prioritizing money over time may actually undermine our happiness.

• ED Elizabeth Dunn is a professor of psychology at the University of British Columbia and Chief Science Officer of Happy Money, a financial technology company with a mission to help borrowers become savers. She is also co-author of “ Happy Money: The Science of Happier Spending ” with Dr. Michael Norton. Her TED2019 talk on money and happiness was selected as one of the top 10 talks of the year by TED.
• CC Chris Courtney is the VP of Science at Happy Money. He utilizes his background in cognitive neuroscience, human-computer interaction, and machine learning to drive personalization and engagement in products designed to empower people to take control of their financial lives. His team is focused on creating innovative ways to provide more inclusionary financial services, while building tools to promote financial and psychological well-being and success.

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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

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• 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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• Economics for Beginners: Understanding the Basics
• Understanding Economics: Why Does Paper Money Have Value?
• The Gold Standard
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• Understanding Nominal Interest Rates
• The 5 Determinants of Economic Demand
• Aggregate Demand & Aggregate Supply Practice Question
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Specific Steps for Saving

1. make a budget.

• 2. Understand Cash Flow

3. Work With Your Partner

• 4. Distinguish "Want" from "Need"

5. Make It Automatic

6. do a review, 7. look for places to cut, 8. think of the children, 9. start now, 10. enjoy life, the bottom line.

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10 Ways to Effectively Save for the Future

It is much easier and more enjoyable to take the income, the money we have earned and worked hard to receive, and spend all of it every month — purchasing whatever we want and not thinking about the future. The problem, when it comes to money, is that we just aren't planning and putting away enough. According to a study by Ramsey Solutions conducted in the second quarter of 2023, 33% of Americans have no savings at all, and 51% do not have savings of at least $1,000.

That's a pity, because there are so many reasons to save for the future . The future doesn't just have to be retirement — the future is tomorrow. Saving means allowing a break from the paycheck-to-paycheck cycle or allowing for a big purchase down the road, like a vehicle, vacation, or house. Living paycheck-to-paycheck, surprisingly, isn't just something that happens to those earning lower incomes, but to anyone unable to create a budget and follow it, in addition to to making savings goals and reaching them.

Between today and the conclusion of our income-earning days, a lot can and will happen. We might lose our job(s), take a pay increase or decrease, move, or become unable to work. Strategizing about the income we make now to devise plans for the future is one of the best things we can do with our hard-earned money.

Key Takeaways

• Saving sufficiently for the future — defined as either tomorrow or three decades from now — is crucial.
• Key steps for saving include making a budget (with a live-in partner if you have one), reviewing your expenses, and understanding your household's cash flow.
• Other key steps include automating your savings, looking for ways to economize by distinguishing between wants and needs, and setting an example for kids.
• Do remember to build in the occasional splurge.
• The best time to start saving? Right now.

Once you realize the importance of saving and the role that it plays in your life, creating goals is the next step to stay on track. Part of setting financial goals is making sure you can meet them. You can use an online savings calculator, for example, to make sure your needs align with your plan.

Armed with the education and tools to create realistic goals for your money, it is time to find and dedicate the money to reach your goals. 

The first thing you need to do is have a budget and stick to it. This includes being realistic about your household financial situation and setting honest and attainable numbers corresponding to your spending so that you can save. Saying you will save and thinking about saving is not enough. You will have to be intentional about what you do with your money.

2. Understand the Concept of Cash Flow

You need to understand cash flow: what it is, how it works, and what your personal household outgo looks like. Review your income and expenses and see where your spending habits lay. Be intentional about making changes to things you can in order to have money available to save. 

If you are married or live with someone, communication and teamwork concerning your household finances are crucial. To save, you both need to be on board with your desires, plans, and resources. The best-laid plans without everyone on board will meet turmoil. 

4. Distinguish Between "Want" and "Need"

Understand the differences between needs and wants and identify yours. Be able to say no when something doesn't align with your financial goals, today and in the future. 

Automate savings so the money stays. If you wait until the end of the month to save, the likelihood will be that there is not much left to save. Make it automatic and have money deposited straight out of your paycheck, or have a portion go into a savings account whenever you make a deposit. If you have a few savings objectives, you can track the money you put into each account and put it through one account or use a few different savings accounts open for various goals. When you see your savings' growth, you are more likely to keep it there.

"If your employer provides a retirement savings plan, consider contributing to it," said Indraneel Chakraborty , an Associate Professor of Finance at the Miami Herbert Business School. "If your employer does not offer a 401(k) or 403(b) plan, then consider opening a Roth IRA. Invest in these accounts using total market index funds with low expense ratios."

Sometimes we do not even realize what we are spending each month until we examine it. Review everything you pay for. What are you buying that you might not need? If you do need it, is there a way to get it for less?

What expenses or items can you cut to enhance your savings goals? Here are five key areas to review for opportunities to save: energy and utilities, food and groceries, banking and credit card fees, taxes, and auto expenses (i.e., gas and insurance).

Also, take into consideration your children. It is incredibly important to teach them about savings and spending. It is also crucial to set an example: They mirror your behaviors and will take your lead on the role of money in their lives. Some essential lessons include waiting to purchase something you want, saving, identifying specific ways for children to save (such as using jars or envelopes), making wise choices, and understanding that when money is spent, it can not be spent somewhere else.

Remember that, whatever your goal is, start now. Something will always come up and compete for your resources. Saving for the future should stay in the forefront of your mind, and your finances, regardless of whatever else comes around.

Yes, we've been preaching the virtues of discipline, belt-tightening, and resisting instant gratification. But everyone is only human. Recognizing the importance of savings doesn't mean you can't now and again spend on things for fun, relaxation, celebrations, or just for the hell of it. But be sure to build the occasional splurge into your budget.

The above strategies will help you to stick to a budget and save for your goals all while allowing for some budgeted fun. Remember, a goal without a plan is just a wish. Write it down, create the time and opportunity, and make it happen.

Ramsey Solutions. " The State of Personal Finance in America Q2 2023 ."

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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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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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The Practice of Saving Money Essay

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Difference between EAP and General English

Skills i have improved and the methods i used, eap areas to be worked on and the methods to use, saving money and carefully planning for the future, contrasting views on the topic, examples of contrasting views on the topic, personal view on the topic.

English for academic purposes focuses on high standards of English for higher learning and studies in general. It provides only what the students need. Therefore, it is goal-oriented as opposed to general English, where students are taught everything necessary to be learned and known in English (Smith 2015). EAP’s major task is learning how to plot theses and dissertations. Hence, there is a need for proper planning, writing, organization, and even proof-reading written works to ensure adherence to the rules of EAP.

Various factors such as the objectives, levels of the students, their goals, and even culture are challenges that make it impossible for EAP to be provided equally. Consequently, such factors must be put into consideration when establishing effective methods of learning EAP. On the contrary, general English only aims at basically teaching students how to listen, speak, read and write English in their day to day communications (Smith 2015).

EAP has numerous features. These features include genres, signposting, and even the use of linking words. Knowledge of the language is also a very crucial component of EAP as it aids the learner in understanding questions and responding to them in their examinations.another differentiating factor between the two varieties of English is that EAP learners are generally adults while General English learners include both children and adults.

Reading and writing are among the main skills I have enhanced. The process of achieving their enhancement was possible through the formation of groups. Particularly, we always hold discussions for purposes of demonstrating how to pronounce and write English words. Group discussions have also helped improve speaking and listening skills. Through them, we are always able to discuss every challenging thing we came across. Eventually, every learner is corrected through consensus and lessons end with all problems settled.

Learners’ expectations should always be addressed in good time (Smith 2015). In this process, appropriate materials must be used in proper ways. This situation can be achieved by setting goals on how to meet learners’ expectations and using certified and approved materials. At the same time, individuals training as teachers of both EAP and general English should be well trained to handle their students without difficulties.

Saving money and striving to make one’s future bright is vital. People should invest every small amount of money they get in businesses for the sake of securing the future. Investing in businesses helps reduce a lot of expense and increase earnings ( Spreading your wings 2015 ). Savings also prevent people from becoming bankrupt for the money is not all spent. Some reasonable amounts of money are left for use later in life. Saving also enables one to get ready for responsibilities that come with getting children. Specifically, one will be able to cater to needs such as good clothing, food, and even quality education.

Apart from taking care of future needs, saving money is ideal because individuals that save money are able of coping with emergencies that may leave someone helpless if he or she did not save (Kobliner 2010). Hence, it is important to save in order to better the future and make life more comfortable. In addition, people must also save with the view of avoiding debts that come when one lacks money. Saving ensures that they comfortably and conveniently cope with situations as they arise without requesting loans and grants, which might later burden them.

However, saving can be very challenging considering the small amounts of money earned by some groups of people and many unending needs that people must satisfy (Eyden 2012). Nonetheless, such situations can be solved and made easier by opening bank accounts for safekeeping. In the same vein, the situation can be salvaged through engaging in leisure activities that do not require money or those that need less money (Eyden 2012).

Examples of such activities are mostly sporting activities that keep one occupied with the view of reducing his or her expenditure. Selling items you no longer need can also earn extra money for saving. Similarly, the keeping of receipts and analyzing them as you check on what you should not buy again or what you will reduce spending on can significantly reduce the amount you spend.

Some people may argue that the death of someone cannot be predicted. Therefore, there is no reason for saving money for the future (Kobliner 2010). They may also argue that saving makes someone lag behind in terms of modern trends and fashions as one is forced to forego secondary needs and only focus on necessary items. Worse still, balancing between one’s spending habits and saving is also a difficult task. Proponents of this standpoint insist that people deny themselves very many things when they decide to save. Hence, such people’s lives do not run the way they should.

An individual who opens a fixed account to save money for five years then dies in the third year of saving having foregone very many things is a good example of a counterargument to the topic. Such a person does not enjoy the benefits of saving. Another good example is that of an individual who avoids keeping up with trendy things and fashion and being classy just to save money for the future (Eyden 2012). Such an individual lives differently from his or her friends. The third example of contrasting views is that of one having problems with balancing between saving and spending. Precisely, she or he saves enough money, but when an emergency arises or when an urge to acquire something or use the money in another way comes up, one quickly opts to use the money saved. This brings about the challenge of balancing.

I believe that both saving and spending are necessary. The best thing to do is to be conscious of both. Do not deny yourself so much in the name of saving and do not also spend everything without thinking of what tomorrow will be. It is good to budget for everything that requires your money and balances the budget well as this prevents overstraining in other areas. Budgeting helps people avoid debts as the money one has is planned for in a way that ensures that all things are catered for, including savings and other amounts meant for future use and emergencies. For easier saving of money, one should avoid impulse buying as it leads to having unnecessary items and spending money in an unplanned way. Hence, it is important to create a budget for yourself.

Eyden, T 2012, Personal financial plans: Saving for the future . Web.

Kobliner, B 2010, A painless saving plan for your future . Web.

Smith, Z 2015, English for academic purposes Vs. general English- 101 crash course . Web.

Spreading your wings, 2015 . Web.

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Essay on Saving Money

Students are often asked to write an essay on 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.

Let’s take a look…

100 Words Essay on Saving Money

Understanding the importance of saving.

Saving money is a crucial habit everyone should develop. It helps us prepare for unforeseen events, achieve financial goals, and secure our future.

Ways to Save Money

There are many ways to save money. You can start by setting a budget, cutting down on unnecessary expenses, and putting aside a portion of your income regularly.

Benefits of Saving Money

Saving money offers several benefits. It provides financial security, enables us to make big purchases, and contributes to a stress-free life.

In conclusion, saving money is a wise and beneficial practice. It leads to financial independence and a comfortable life.

250 Words Essay on Saving Money

The importance of saving money.

Saving money is a vital life skill, especially for college students who are just beginning to navigate the financial world. Understanding the importance of saving and implementing it in daily life can pave the way for financial security and independence.

Why Save Money?

The primary reason to save money is to achieve financial security. Unpredictable life events, such as job loss, medical emergencies, or unexpected expenses, can create financial stress. Having a safety net in the form of savings can mitigate these risks. Moreover, savings can fund life goals like education, homeownership, or starting a business.

Strategies for Saving Money

Creating a budget is the first step towards saving. It helps to track income and expenses, revealing potential areas for cost-cutting. Next, establishing an emergency fund can provide a financial buffer against unforeseen circumstances. Investing is another powerful tool for saving. It allows money to grow over time, leveraging the power of compounding.

The Role of Discipline and Consistency

Saving money requires discipline and consistency. It’s important to regularly contribute to savings, even if the amounts are small. Over time, these small amounts can accumulate into significant savings. It’s also crucial to resist the temptation of unnecessary spending and to prioritize long-term financial goals.

In conclusion, saving money is an essential skill that can lead to financial security and the ability to achieve life goals. By budgeting, creating an emergency fund, investing, and practicing discipline and consistency, college students can lay a solid foundation for their financial future.

500 Words Essay on Saving Money

Introduction.

The importance of saving money cannot be overstated. It provides a safety net during unexpected circumstances like medical emergencies, job loss, or sudden large expenses. In addition, it can help fund significant life events such as higher education, buying a house, or retirement.

Moreover, saving money can lead to financial freedom. It allows us to make investments that can generate passive income, ultimately leading to a more comfortable and secure future. It’s not just about having money; it’s about the freedom and peace of mind that come with it.

Another strategy is automating savings. By setting up automatic transfers to savings accounts, we can save money without even thinking about it. This not only ensures regular saving but also reduces the temptation to spend.

Investing is another powerful way to save. By investing in stocks, bonds, or real estate, we can grow our wealth over time. However, investing requires careful planning and understanding of the market.

The Psychological Aspect of Saving Money

The act of saving also fosters a sense of responsibility. It makes us more aware of our spending habits and encourages us to make smarter financial decisions. Moreover, it can boost our confidence and self-esteem, knowing that we are taking control of our financial future.

In conclusion, saving money is a vital skill that everyone should cultivate. It’s not just about accumulating wealth; it’s about ensuring financial security, gaining financial freedom, and fostering personal growth. By adopting effective saving strategies and understanding the psychological aspects of saving, we can make informed decisions that will benefit us in the long run. Remember, every penny saved is a step towards a more secure and prosperous future.

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IELTS Cambridge 19 Essay: Save Money for the Future

by Dave | Cambridge 19 | 0 Comment

This is my IELTS writing task 2 sample answer essay from IELTS Cambridge 19 on the topic of whether all people, including young people, should save money for the future.

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IELTS Essay: Save Money for the Future

It is important for everyone, including young people, to save money for their future.

To what extent do you agree or disagree with this statement?

Many contend that securing financial stability is essential for individuals of all ages. I am generally in agreement with this contention though I would concede that saving money can be taken to illogical excesses.

Undue emphasis on saving prioritizes satisfaction in a possible future over enjoyment of the present moment. In most countries, individuals begin to save and plan for retirement as young adults. This approach means that by the time they have enough time to enjoy themselves, they are likely older, unhealthy, and less capable of living an active life. A person who saves for a comfortable retirement by abstaining from travel, going out with friends regularly, and spending on luxuries might discover later in life that a sizeable savings account is no substitute for a full life. However, this assumes an extreme approach to saving that is rare for the vast majority of people who can typically balance basic fiscal responsibility with freer spending habits.

Moreover, saving money allows individuals of all ages to safeguard the flexibility to pursue a variety of passions in life. Those who have not inherited generational wealth and do not commit themselves to saving, will almost undoubtedly have to work long hours for many years. Yet, if a worker slowly accumulates savings then that allows them to make investments and generate passive income streams. These alternative ways of earning money can give them options in life. They might decide to quit or work fewer hours and pursue a passion project. They might also be more inclined to be entrepreneurial or adventurous in their choice of vocation. All these options lead to a richer and more varied life that contrasts markedly with working diligently towards retirement.

In conclusion, despite the possible risks of fixating on savings to the detriment of quality of life, there is value in saving wisely for all individuals. These savings will likely vary in size depending on the needs and circumstances of each person.

1. Many contend that securing financial stability is essential for individuals of all ages. 2. I am generally in agreement with this contention though I would concede that saving money can be taken to illogical excesses.

• Paraphrase the overall essay topic.
• Write a clear opinion. Read more about introductions here .

1. Undue emphasis on saving prioritizes satisfaction in a possible future over enjoyment of the present moment. 2. In most countries, individuals begin to save and plan for retirement as young adults. 3. This approach means that by the time they have enough time to enjoy themselves, they are likely older, unhealthy, and less capable of living an active life. 4. A person who saves for a comfortable retirement by abstaining from travel, going out with friends regularly, and spending on luxuries might discover later in life that a sizeable savings account is no substitute for a full life. 5. However, this assumes an extreme approach to saving that is rare for the vast majority of people who can typically balance basic fiscal responsibility with freer spending habits.

• Write a topic sentence with a clear main idea at the end.
• Explain your main idea.
• Develop it with specific or hypothetical examples.
• Keep developing it fully.
• Better to have more detail.

1. Moreover, saving money allows individuals of all ages to safeguard the flexibility to pursue a variety of passions in life. 2. Those who have not inherited generational wealth and do not commit themselves to saving, will almost undoubtedly have to work long hours for many years. 3. Yet, if a worker slowly accumulates savings then that allows them to make investments and generate passive income streams. 4. These alternative ways of earning money can give them options in life. 5. They might decide to quit or work fewer hours and pursue a passion project. 6. They might also be more inclined to be entrepreneurial or adventurous in their choice of vocation. 7. All these options lead to a richer and more varied life that contrasts markedly with working diligently towards retirement.

• Write a new topic sentence with a new main idea at the end.
• Explain your new main idea.
• Include specific details and examples.
• Add as much information as you can and make sure it links logically.
• Keep adding more detail.
• Include long and short sentences.
• This essay is a bit long – aim for about 275 words.

1. In conclusion, despite the possible risks of fixating on savings to the detriment of quality of life, there is value in saving wisely for all individuals. 2. These savings will likely vary in size depending on the needs and circumstances of each person.

• Summarise your main ideas.
• Include a final thought. Read more about conclusions here .

What do the words in bold below mean? Make some notes on paper to aid memory and then check below.

Many contend that securing financial stability is essential for individuals of all ages . I am generally in agreement with this contention though I would concede that saving money can be taken to illogical excesses .

Undue emphasis on saving prioritizes satisfaction in a possible future over enjoyment of the present moment . In most countries, individuals begin to save and plan for retirement as young adults . This approach means that by the time they have enough time to enjoy themselves, they are likely older, unhealthy, and less capable of living an active life . A person who saves for a comfortable retirement by abstaining from travel, going out with friends regularly , and spending on luxuries might discover later in life that a sizeable savings account is no substitute for a full life . However, this assumes an extreme approach to saving that is rare for the vast majority of people who can typically balance basic fiscal responsibility with freer spending habits .

Moreover, saving money allows individuals of all ages to safeguard the flexibility to pursue a variety of passions in life . Those who have not inherited generational wealth and do not commit themselves to saving, will almost undoubtedly have to work long hours for many years. Yet , if a worker slowly accumulates savings then that allows them to make investments and generate passive income streams . These alternative ways of earning money can give them options in life. They might decide to quit or work fewer hours and pursue a passion project . They might also be more inclined to be entrepreneurial or adventurous in their choice of vocation . All these options lead to a richer and more varied life that contrasts markedly with working diligently towards retirement .

In conclusion, despite the possible risks of fixating on savings to the detriment of quality of life , there is value in saving wisely for all individuals. These savings will likely vary in size depending on the needs and circumstances of each person.

For extra practice, write an antonym (opposite word) on a piece of paper to help you remember the new vocabulary:

contend (argue) securing financial stability (ensuring you have enough money) essential (crucial) of all ages (for all generations) I am generally in agreement with this contention (I generally agree with this argument) concede (admit) taken to illogical excesses (taken to unreasonable extremes) Undue emphasis on (Excessive focus on) prioritizes satisfaction (prioritizes contentment) a possible future (a potential future) enjoyment of the present moment (appreciation of the present moment) plan for retirement (prepare for old age) young adults (young individuals) approach (approach) less capable of (less capable of) active life (active lifestyle) comfortable retirement (secure retirement) abstaining from (refraining from) regularly (regularly) spending on luxuries (splurging on luxuries) discover later in life (discover later in their lives) sizeable savings account (substantial savings account) no substitute for a full life (no replacement for a fulfilling life) assumes (presumes) extreme approach to (radical approach to) rare (uncommon) the vast majority of (the vast majority of) typically balance basic fiscal responsibility (typically balance fundamental financial responsibility) freer spending habits (more liberal spending habits) safeguard (protect) flexibility (adaptability) pursue a variety of passions in life (pursue various interests in life) inherited generational wealth (inherited family wealth) undoubtedly (undoubtedly) Yet (However) accumulates savings (accumulates funds) make investments (make investments) generate passive income streams (generate passive income sources) These alternative ways of earning money (These alternative methods of earning money) options (choices) work fewer hours (work fewer hours) pursue a passion project (pursue a passion venture) be more inclined to (be more inclined to) entrepreneurial (entrepreneurial) adventurous (adventurous) choice of vocation (career choice) richer (wealthier) more varied life (more diverse life) contrasts markedly (differs significantly) working diligently towards retirement (despite) possible risks (potential hazards) fixating (obsessing over) to the detriment of quality of life (to the detriment of quality of life) value (appreciate) saving wisely (saving prudently) vary in size depending on (vary in magnitude depending on) circumstances (conditions)

Pronunciation

Practice saying the vocabulary below and use this tip about Google voice search :

kənˈtɛnd sɪˈkjʊərɪŋ faɪˈnænʃᵊl stəˈbɪləti ɪˈsɛnʃᵊl ɒv ɔːl ˈeɪʤɪz aɪ æm ˈʤɛnᵊrᵊli ɪn əˈɡriːmənt wɪð ðɪs kənˈtɛnʃᵊn kənˈsiːd ˈteɪkᵊn tuː ɪˈlɒʤɪkᵊl ɪkˈsɛsɪz ʌnˈdjuː ˈɛmfəsɪs ɒn praɪˈɒrɪˌtaɪzɪz ˌsætɪsˈfækʃᵊn ə ˈpɒsəbᵊl ˈfjuːʧə ɪnˈʤɔɪmənt ɒv ðə ˈprɛzᵊnt ˈməʊmənt plæn fɔː rɪˈtaɪəmənt jʌŋ ˈædʌlts əˈprəʊʧ lɛs ˈkeɪpəbᵊl ɒv ˈæktɪv laɪf ˈkʌmfᵊtəbᵊl rɪˈtaɪəmənt əbˈsteɪnɪŋ frɒm ˈrɛɡjələli ˈspɛndɪŋ ɒn ˈlʌkʃᵊriz dɪˈskʌvə ˈleɪtər ɪn laɪf ˈsaɪzəbᵊl ˈseɪvɪŋz əˈkaʊnt nəʊ ˈsʌbstɪtjuːt fɔːr ə fʊl laɪf əˈsjuːmz ɪkˈstriːm əˈprəʊʧ tuː reə ðə vɑːst məˈʤɒrəti ɒv ˈtɪpɪkᵊli ˈbælᵊns ˈbeɪsɪk ˈfɪskᵊl rɪˌspɒnsɪˈbɪləti ˈfriːə ˈspɛndɪŋ ˈhæbɪts ˈseɪfɡɑːd ˌflɛksəˈbɪləti pəˈsjuː ə vəˈraɪəti ɒv ˈpæʃᵊnz ɪn laɪf ɪnˈhɛrɪtɪd ˌʤɛnəˈreɪʃᵊnᵊl wɛlθ ʌnˈdaʊtɪdli jɛt əˈkjuːmjəleɪts ˈseɪvɪŋz meɪk ɪnˈvɛstmənts ˈʤɛnəreɪt ˈpæsɪv ˈɪnkʌm striːmz ðiːz ɒlˈtɜːnətɪv weɪz ɒv ˈɜːnɪŋ ˈmʌni ˈɒpʃᵊnz wɜːk ˈfjuːər aʊəz pəˈsjuː ə ˈpæʃᵊn ˈprɒʤɛkt biː mɔːr ɪnˈklaɪnd tuː ˌɒntrəprəˈnɜːriəl ədˈvɛnʧərəs ʧɔɪs ɒv vəʊˈkeɪʃᵊn ˈrɪʧə mɔː ˈveərɪd laɪf ˈkɒntrɑːsts ˈmɑːkɪdli ˈwɜːkɪŋ ˈdɪlɪʤᵊntli təˈwɔːdz rɪˈtaɪəmənt dɪˈspaɪt ˈpɒsəbᵊl rɪsks fɪkˈseɪtɪŋ tuː ðə ˈdɛtrɪmənt ɒv ˈkwɒləti ɒv laɪf ˈvæljuː ˈseɪvɪŋ ˈwaɪzli ˈveəri ɪn saɪz dɪˈpɛndɪŋ ɒn ˈsɜːkəmstɑːnsɪz

Vocabulary Practice

I recommend getting a pencil and piece of paper because that aids memory. Then write down the missing vocabulary from my sample answer in your notebook:

Many c_______d that s_________________y is e________l for individuals o__________s . I ____________________________________________ n though I would c_____________e that saving money can be t___________________________s .

U______________________n saving p______________________n in a_______________e over e ____________________________________ t . In most countries, individuals begin to save and p __________________ t as y____________s . This a__________h means that by the time they have enough time to enjoy themselves, they are likely older, unhealthy, and l___________________f living an a__________e . A person who saves for a c__________________t by a____________m travel, going out with friends r___________y , and s___________________s might d___________________e that a s ____________________________ t is n_________________________e . However, this a__________s an e_________________________o saving that is r_____e for t_______________f people who can t ________________________________________________ y with f ___________________ s .

Moreover, saving money allows individuals of all ages to s_________d the f____________y to p __________________________________ e . Those who have not i______________________________h and do not commit themselves to saving, will almost u____________y have to work long hours for many years. Y__t , if a worker slowly a_______________________s then that allows them to m __________________________ s and g _______________________________ s . T ________________________________________ y can give them o________s in life. They might decide to quit or w_____________s and p ___________________ t . They might also b__________________o be e _________________ l or a____________s in their c ___________________ n . All these options lead to a r_____r and m________________e that c___________________y with w ______________________________________ t .

In conclusion, d__________e the p___________s of f______g on savings t ________________________________________ e , there is v________e in s_______________y for all individuals. These savings will likely v _________________________________ n the needs and c____________s of each person.

Listening Practice

Learn more about this topic by watching from YouTube below and practice with these activities :

Reading Practice

Read more about this topic and use these ideas to practice :

https://bettermoneyhabits.bankofamerica.com/en/saving-budgeting/ways-to-save-money

Speaking Practice

Practice with the following speaking questions from the real IELTS speaking exam :

Describe an interesting job.

You can say:

What the job is

How you learned about this job

What skills this job requires

And say if you would like to do this job

Careers & Jobs (IELTS Speaking Part 3)

Question 1: What kind of job do you think will be popular in the future? Why?

Question 2: What do you think are the benefits of having a steady job?

Question 3: Do you think it’s better to work for a big company or a small company? Why?

Question 4: What do you think are the most important skills for getting a good job?

Question 5: Do you think it’s important to have a job that you love or a job that pays well? Why?

Question 6: Do you think it’s better to work in the private sector or the public sector? Why?

Writing Practice

Practice with the related IELTS essay topic :

In many countries, people increasingly talk about money such as how much they earn or how much they pay for things in their daily conversations.

Is this a positive or negative trend?

IELTS Essay: Money

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Home — Essay Samples — Literature — Money and Class in America — The Importance of Saving Money

The Importance of Saving Money

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Published: Mar 16, 2024

Words: 893 | Pages: 2 | 5 min read

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Will Social Security Really Run Out of Money in 2035? Here's How It Could Last Decades Longer.

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There's more uncertainty in the latest Social Security projections than you might think.

When it comes to projecting Social Security's financial future, the Social Security Trustees Report contains three sets of estimates that make different assumptions about things like future birth rates, economic growth, inflation, wage growth, interest rates, and more. They are known as the intermediate, low-cost, and high-cost scenarios.

All of the headline estimates about Social Security's future, including the projection that it will run out of money in the trust funds by 2035, are based on the intermediate estimates.

Just to name a few of the assumptions made in the intermediate scenarios, it assumes that the total fertility rate (number of children per woman) will be 1.9 in 2040 and beyond, with 1.63% annualized economic growth, 2.4% annual average inflation, 3.56% annual wage growth, a 4.5% unemployment rate, and a 2.3% average interest rate on the Treasury securities Social Security holds. However, there's no guarantee that these will be the actual numbers, and that's why it's important to know the other two scenarios and what they mean.

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The low-cost scenario is entirely possible

Of course, these are just the median estimates, but if they were to shift in certain directions, it would be a good thing for Social Security . Just to name a few reasons:

• Higher fertility rates mean that there will be more workers paying into Social Security.
• Lower unemployment rates also mean that more of the available workforce will have Social Security-taxable income.
• Higher Treasury security interest rates mean more interest income flowing into the program from Social Security's reserves.
• Faster wage growth would mean more total income that could be subject to Social Security tax.

The low-cost scenario makes more aggressive, but entirely plausible, assumptions about these and other things. For example, it assumes:

• Fertility rate of 2.1 children per woman.
• Average economic growth rate of 1.93%.
• 0% average inflation rate.
• 79% average wage growth (1.74% after inflation).
• 5% unemployment rate.
• 8% average interest rate on new Treasury securities.

It also assumes a higher rate of immigration into the United States (both legal permanent residents and otherwise), which would mean more people paying into the system.

We'll get into what this would mean in the next section, but the takeaway is that none of this would be too far-fetched. These are all things that are well within the realm of possibilities. And if you're curious, the high-cost estimate assumes a lower fertility rate of 1.6 children, a more sluggish 1.33% economic growth rate, 1.8% annual inflation, and 5.5% average unemployment, just to name a few.

What does it mean to you?

As the headlines say, Social Security's trust funds are expected to run out of money in 2035, based on the intermediate assumptions. If the high-cost assumptions prove accurate, the projected out-of-money date is accelerated to 2032.

On the other hand, under the low-cost scenario, the Social Security trust funds wouldn't be depleted until 2080, 45 years later than expected . What's more, they would once again start to build back up a few years later.

To be perfectly clear, I'm not saying that the low-cost scenario is likely to happen, or that Social Security doesn't need reforms. It absolutely does. The fact that even under the most aggressive assumptions Social Security will eventually run out of money is a problem.

However, my point is that when you see headlines about how Social Security will run out of money in 2035, it's important to know that isn't a set-in-stone date. After all, between the low-cost and high-cost assumptions, that is a 48-year window during which Social Security runs out of money. There's a lot of uncertainty, so when you see headlines like "only 10 years until Social Security is out of money," take them with a big grain of salt.

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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 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?

• Technology and Innovation
• Cryptocurrencies and Blockchain Technology
• Monetary Policy
• International Finance

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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• What the history of money tells you about crypto’s future

The thread from shipwrecks and sheep flocks to digital currencies

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T his month China’s central bank revealed that its digital currency, the e- CNY , had been used for 7trn-yuan-worth of transactions in its short life—an amount equivalent to almost $1trn. China is not alone. Over 130 countries are exploring digital currencies, according to the Atlantic Council, a think-tank. Proponents of official digital currencies believe that a combination of ubiquitous smartphones, innovative cryptography and vast computing power means it is possible to remake the financial system.

The future of money, in other words, is attracting attention. What of its past? In a new paper, Adam Brzezinski of the London School of Economics, Nuno Palma of the University of Manchester and François Velde of the Chicago branch of the Federal Reserve urge readers also to pay close attention to money’s long history. It is capable of “delightful surprises”, they point out. It also contains some parallels to the supposed novelties of today.

Central-bank digital currencies, for example, could give members of the public an account at the central bank. That sounds new. But as several economists have noted, it is also a return to the past. The Bank of England used to take deposits from the public: in 1855 a Regent Street hatter is recorded to have opened an account at the bank’s handsome new branch in Mayfair. And in 1900 the Bank of Spain held over half the country’s current accounts.

The study of history may also disappoint crypto enthusiasts who wish to liberate money from government control. Monetary policy—the manipulation of money by the state—is almost as old as money itself. Even when coins were made out of gold or silver, governments fiddled with their weight and purity. The value of coins often departed from the preciousness of their materials. Indeed, governments sometimes diluted the silver content of smaller, more practical coins to prevent shortages.

Until the 19th century, the value of coins was rarely inscribed on their face. They had no “face value” in this literal sense, as Mr Brzezinski and co-authors point out. This allowed for a separation between two functions of money that are now seamlessly joined. Coins served as a medium of exchange, the thing people swapped for the stuff they bought. Yet they did not serve as the unit of account, the thing in which everything else is priced. Often the unit of account was an old coin that had since disappeared from circulation; “ghost money”, in the words of Carlo Cipolla, a historian.

Such separation allowed the French court to carry out a grand monetary-policy experiment in the 1720s. In an effort to lower prices—what you might call an Inflation Reduction Act—the king’s council decided, without warning, that coins would be worth less than before. From 1723 to 1724, it cut their value by 45%. The policy resembles the kind of thought experiment beloved of economic theorists. David Hume, for example, once imagined what would happen if £5 was “slipt” into the pockets of every man in Britain, doubling the money in the kingdom. Would this miracle make everyone twice as rich? He assumed that it would only increase the price of everything “without further consequence”. The French in 1724 likewise expected prices to fall quickly.

They were wrong. “Everyone is so accustomed to sell dearly that no one can bring themselves to lower their prices,” one observer reported. “By a barely conceivable madness it seems that everyone in concert insists on doing the opposite of what common sense and reason dictate.” It took almost four years for prices to fall back into line. In the interim, France suffered an industrial recession: the number of looms in operation fell by about 30%.

The French decision was reckless, rather than random. It was imposed on an economy that suffered from inflation. It was not therefore a clean test of the effects of monetary shocks. Unfortunately, it is hard to conduct randomised trials of monetary policy.

History does nevertheless throw up “natural” experiments. In an earlier paper, Mr Brzezinski, Mr Palma and two co-authors exploited one source of variation in the money supply of early modern Spain: disasters at sea. Ships carrying treasure to Spain from the Americas would sometimes encounter hurricanes, privateers or the British navy. In 42 incidents from 1531 to 1810, they lost some or all of the precious metals that Spanish merchants had expected to receive. The losses averaged 4% of Spain’s money stock. Drawing on a variety of sources, including tax records and tallies of sheep, the authors showed the damage these losses inflicted on Spain’s economy. Credit became scarce, making it hard for merchants to buy supplies for weavers, and consumer prices were slow to adjust. A loss of 1% of the money stock could reduce real output by about 1% in the subsequent year. Sheep-flock sizes fell by 7%.

Paper, the barbarous relic

To the modern eye it seems strange to allow the money supply to be such a hostage to fortune. Why should it shrink when ships sink? Why should it expand when fresh deposits of silver are discovered? Even in the 18th century, some visionaries thought money should break its link to metals. The most prominent example is John Law, a Scottish banker and chancer who somehow persuaded France to shake up its monetary arrangements in 1716.

Law was ahead of his time—his experiment with fiat paper currency ended in disastrous inflation. In the future, money may need to change form again. It may shed all physical manifestations, as coins and notes become obsolete; the bank deposit may be replaced by a claim on the monetary authority itself. But some economists worry that such a transition also poses risks, making bank runs, or even runs out of currency into physical assets, easier. Although the forms money takes may be new, its effects will rarely be neutral. And as Mr Brzezinski and co-authors point out, it is cheaper to learn from the mistakes of the past than to make instructive mistakes in the present. ■

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This article appeared in the Finance & economics section of the print edition under the headline “Deep in the vaults”

Finance & economics September 21st 2024

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