Can a Banknote be Purely Digital?

Can a banknote be purely digital? This is the question examined in an article in the Oxford Journal of Legal Studies. In “The e-Banknote as a ‘Banknote’: A Monetary Law Interpreted,” the authors find that from both functional and legal perspectives a banknote may indeed be written electronically. Here, I will just give an overview of the legal argument.

A banknote, the authors state, is defined as “an unconditional promise in writing signed by a banker who commits to pay a certain sum on demand to the bearer…[and] is a negotiable instrument.” In sum, a banknote is a note from a bank or banker. It is a written promise to pay, having explicit and/or implicit provisions and a signature.

However, the “definition of a banknote does not include an independent requirement that it should be a tangible object.” It is simply a function of history and past technology that a banknote became a written (or printed) piece of paper. Today writing and signatures can be purely digital and legally enforceable: “Once technology allows these functions to be performed through a novel medium, as in the case of digital coins, it is no more necessary to retain the paper format than to insist on the existence of a genuine obligation to pay metallic money.”

So, to sum up, the essence of a banknote or a note from a banker is its written promise to pay a certain amount and etc., and that written promise can be communicated entirely via a physical or a digital medium. Hence, a banknote can be purely digital.

This idea could have implications in the design of CBDCs or digital cash alternatives.