What is digital money?

Digital money is money we experience not as a physical object, but as a number on a screen in a savings or checking account. Money has almost always existed simply in the form of accounts or credit—information about the amount someone is owed or owes rather than a set of physical things they hold. But today’s digital money has still brought about some pretty important changes in our economies.

First up, digital money can be transferred instantly, without the need to transport it. That's pretty nice for those of us who don't like carrying bags of money around. But the fees associated with storing and transferring digital money are a burden for a lot of people—with small businesses hit particularly hard. Still, digital money makes it easier than ever to zip money around the world. This is important for migrants who can work across countries and send their earnings to one another in a matter of minutes. These payments, called remittances, are a significant part of the world economy that relies heavily on digital money.

But despite the added convenience of digital money, there are downsides too. Often, carrying less cash also means we carry less change to leave as a tip or give to charity or to homeless people. Plus, digital money can make life a lot harder for people and businesses without easy access to the financial system. Emotionally, many people find it easier to hand over a debit card than a paper bill.¹² The distance between us and our money can sometimes cause us to spend more than we intended to.

Finally, as digital money is stored as data, it's harder for you to lose, and harder for crooks to steal with guns and a getaway car. But, on the flip side, our data is now vulnerable to hackers with computers, as crimes like identity fraud have become prevalent in recent years.