CBDCs, digital currencies could lead to cash extinction: IMF paper

All signs point towards a cashless society, whether through convenience or coercion — carrot or stick: perspective

Digital currencies like CBDCs could make cash extinct, whether by design or through market preference, according to an IMF working paper.

With widespread digital currency adoption, cash may go the way of the dodo bird, and it would be “challenging and costly” to revive it if a society were to go fully cashless, according to the IMF working paper, “Could Digital Currencies Lead to the Disappearance of Cash from the Market?” by Marco Pani and Rodolfo Maino.

“Cash could disappear from the market as an unintended consequence of innovations, such as the introduction of central-bank digital currencies, due to a lack of demand, even if such a development were to ultimately lead to a suboptimal outcome”

IMF Working Paper, “Could Digital Currencies Lead to the Disappearance of Cash from the Market?“, March 2025

The disappearance of cash, according to the authors, could come about either through direct policy or as a natural part of innovation and digital currency adoption.

They say that “the introduction of a DC [Digital Currency] in a diverse payment ecosystem—comprising cash, traditional payment cards, and modern electronic money—where the use of physical cash has already declined significantly, could lead to the complete disappearance of cash, even if such an outcome were not an intentional policy objective.”

The authors looked at how merchants and customers use physical cash and cards, and simulated how the introduction of digital currencies could either complement cash and cards or wipe them out completely.

According to the report, the introduction of a new currency can alter the market equilibrium in several qualitatively different ways:

1. It may displace one of the exiting currencies (either cash or cards);
2. It may replace both currencies; or
3. It may continue to be used indefinitely alongside the other two currencies.

“Considering the sharp decline in the use of cash for transaction purposes observed in the past couple of decades in most jurisdictions, the possibility that cash could become ‘extinct’ does not seem to be negligible”

IMF Working Paper, “Could Digital Currencies Lead to the Disappearance of Cash from the Market?“, March 2025

Programmable digital currencies like Central Bank Digital Currencies (CBDCs) cannot operate without pegging every user to a digital identity.

What’s more, these programmable digital currencies can be controlled remotely, so that taxes and fines could automatically be taken out of accounts, or so that restrictions could be placed on what you could buy, where you could buy it and when.

Last year, the IMF published a policy brief acknowledging that CBDCs could be used for state surveillance while posing risks to privacy and cybersecurity that could undermine trust in central bank money.

“CBDC could be perceived as an instrument for state surveillance. Some may worry that the government or the central bank could use it to control or restrict payments users can make with CBDC, thereby undermining public trust in central bank money. This can be a particular concern in countries with severe governance and corruption vulnerabilities”

IMF, “Central Bank Digital Currency: Progress And Further Considerations,” November 2024

According to the November 2024 IMF brief, “Central Bank Digital Currency: Progress And Further Considerations:”

“CBDC, as a digital form of central bank money, may allow for a ‘digital trail’—data—to be accessed, collected, processed and stored.

“In contrast to cash, CBDC could be designed to potentially include a wealth of personal data encapsulating transaction histories, user demographics, and behavioral patterns.

“Personal data could establish a link between counterparty identities and transactions.”

“Cash extinction could, in the long term, permit the emergence of unfavorable scenarios that could range from relatively “benign” increases in fees, user costs, and outages, to much more troublesome interferences in how users spend their balances and conduct their private lives”

IMF Working Paper, “Could Digital Currencies Lead to the Disappearance of Cash from the Market?“, March 2025

While the IMF acknowledges the risks to privacy, the potential for government surveillance, and how public and private entities could leverage user data for nefarious means, it is still plowing ahead with a CBDC Handbook for central banks and governments to follow during their rollouts.

The IMF consistently says that digital currencies should be complementary to physical cash and to not replace it, but all signs point towards the erosion of cash over time, whether through convenience or coercion — carrot or stick.

Speaking at the World Economic Forum’s (WEF) Special Meeting on Global Collaboration, Growth and Energy Development last year, Central Bank of Bahrain governor Khalid Humaidan told the panel “Open Forum: The Digital Currencies’ Opportunity in the Middle East” that one of the goals of CBDC was to replace cash, at least in Bahrain, and to go “one hundred percent digital.”

“We’re probably going to stop calling it central bank digital currency; it’s going to be a digital form of the cash, and at some point in time hopefully we will be able to be one hundred percent digital”

Bahrain Central Bank Governor Khalid Humaidan, World Economic Forum, April 2024

“If we think cash is the analogue and digital currency is the form of digital — CBDC is the digital form of cash — today, clearly we’re in a hybrid situation; we’re using both,” said Humaidan.

“We know in the past when it comes to cash, central bankers were very much in control with all aspects of cash, and now we’re comfortable to the point where the private sector plays a big role in the printing of the cash, in the distribution of the cash, and with the private sector we use interest rates to manage the supply of cash.

“The same thing is likely to happen with CBDC. Yes, the central bank will have a role, but at some point in time — the same way we don’t call it ‘central bank cash’ — we’re probably going to stop calling it central bank digital currency.

“It’s going to be a digital form of the cash, and at some point in time hopefully we will be able to be one hundred percent digital,” he added.

“Cash provides a high degree of anonymity and independence from intermediaries that distinguish it from digital payment methods. For instance, cash often does not generate transaction records, does not require third-party involvement, and, unlike some digital currencies, is not subject to remote control”

IMF Working Paper, “Could Digital Currencies Lead to the Disappearance of Cash from the Market?“, March 2025

While the IMF advises to not eliminate cash altogether, central banks and governments are already moving in that direction.

Furthermore, a WEF Agenda blog post from September, 2017 lists the “gradual obsolescence of paper currency” as being “characteristic of a well-designed CBDC.”

If cash were to go extinct, the latest IMF working paper warns, “reintroducing cash in a non-cash system would be challenging and costly.”

Therefore, the authors conclude:

“To safeguard the continued utilization of cash and to uphold the equilibrium of the payment system, the study advocates for a proactive policy approach and for the implementation of measures aimed at ensuring the sustained relevance of physical currency, especially in scenarios where the introduction of new digital currencies might inadvertently lead to the extinction of traditional cash.”

The IMF working paper “Could Digital Currencies Lead to the Disappearance of Cash from the Market?” was published on the IMF website in March 2025; however, the paper was first published in the International Advances in Economic Research journal on February 19, 2024 under its original title “Could CBDCs Lead to Cash Extinction? Insights from a ‘Merchant-Customer’ Model.”

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