Due to the rapid digitalisation of the economy, an increase in e-commerce, and the expanding availability of financial products, a lot of people speculate that a cashless society is on the horizon. But is this a likely outcome? And how feasible is a cashless economy?
Are we becoming cashless?
The sharp rise in the availability of digital payment methods such as debit cards, credit cards and mobile wallets, leads many to envision a future without cash. While it might be difficult to predict if cash will die out completely, it’s clear to see that cash usage has definitely declined in some parts of the world.
On the flipside, according to a report from Cash Matters, “cash continues to play an essential role in most economies” and remains the “most-used payment option across Africa and the Middle East, and Latin America”, demonstrating that cash is still vital.
There has also been a bill reintroduced in the USA – the Payment Choice Act – which aims to make it illegal to refuse cash payments, protecting the citizens who still rely on cash, and preserving their right to privacy.
The factors determining whether a country starts to lean towards being cashless are myriad, and in some ways unpredictable. Generally technological advancement in the economy as well as financial literacy are key factors, but the path to becoming cashless is not always clear.
The steep rise in digital payment methods has naturally led to a decrease in cash transactions. Online purchasing has significantly increased – retail e-commerce sales have increased year-over-year since 2014, particularly in nascent parts of the world such as Southeast Asia.
Consumers are moving more towards online shopping, and in turn, becoming more accustomed to digital payments and moving away from cash.
Many governments have actively pushed the use of digital payments in order to accelerate the digitisation of the economy. It also allows greater economic control and insight, as well as the ability to more effectively combat tax evasion and money laundering.
Efficient for businesses
Many businesses in urban areas have started to operate as cashless establishments, which can increase security and means that cash processing fees can be avoided. Furthermore, the wide availability of digital bank accounts and business tools means that it’s a cheaper and more effective option for many businesses.
Cash is a key part of cultural exchange, and the rate at which cash usage will decline also varies on cultural norms and regional factors.
Morocco has been cited as the most cash-reliant country in the world, with cash-based payments making up 74% of all transactions – despite the fact that approximately 84% of the population have access to the internet. This suggests that access to digital products does not necessarily cause a shift to digital payments, and some populations will still prefer to use cash.
Trust of the government may come into play here, as some individuals will prefer the privacy and anonymity that cash provides, and may not trust a change to cashless transactions. Attitudes towards technology and technological advancements will also affect behaviour around currency.
Norway, Sweden and Denmark are all high on the list of the most cashless countries, and are known for political stability and trust in their governments.
Advantages of a cashless society
Whether society would benefit without physical cash, or even be able to function is still up for debate. The transition away from gold reserves caused significant shocks to the economy, and led to some economic turmoil. However, many argue that gold reserves are not efficient for an economy, and economic prosperity requires moving away from physical and fiat currencies.
More efficient for businesses
Businesses of all sizes can benefit greatly by going cashless – if the target market has digital access. Going cashless eliminates several risks, such as theft and robbery, inefficient accounting, and potential losses when transporting the cash.
As many accounting services are digital too, a business can operate entirely online and account for all transactions throughout the business. The speed of digital transactions is also a benefit, and particularly with contactless payments, many businesses can process transactions faster, and therefore serve more customers in a smaller time frame. This can also increase customer satisfaction.
Reducing criminal activity
Cash is often used in criminal activities, so a reduction of cash could make it more difficult for some criminals to operate. Money laundering and tax evasion are significantly more tricky with digital transactions, as a record is kept of all transactions and can easily be traced.
Better economic insight
A cashless society would make it easier to collect economic data and track the movement of the economy. This could allow a government greater visibility on the economy, and mean that it can implement policies and economic changes that are derived from more accurate data.
Disadvantages of a cashless society
While an entirely digital economy seems attractive, there are a few disadvantages of a cashless society to consider.
Cash is generally more common in low socioeconomic areas, and more vulnerable individuals such as the elderly and those with disabilities.
A transition to a cashless society might be more efficient for more privileged areas of the population who have access and an understanding of the technology, but for those who don’t, it could present significant difficulties.
As stated in this report from the UK HM Treasury, cash is considered a “symbol of independence” for many elderly and vulnerable people in the UK. A removal of this cash could cause significant economic woes and disruption to many lives.
Government control & surveillance
A major concern for a cashless society is the government having total control over all finances, and being able to track the activity of all citizens. This so-called “symbol of independence” would be swiftly eradicated.
Governments would have the power to:
- Enforce any type of tax
- Control the population
- Conduct mass surveillance
- Restrict certain spending
Furthermore, corporations could obtain similar powers, and be able to track individuals and influence behaviours to their advantage.
Is there a cashless society?
No society is completely cashless, but Sweden and Norway have come close. Finland also has an incredibly high rate of digital transactions, and The Bank of Finland has actually made a prediction that it will be cashless by 2029.
A cashless society is not impossible, but there are significant risks of rushing, such as financial exclusion and economic turmoil.
Will cash be phased out?
While it’s clear that cash usage is declining, it’s unlikely that cash will be phased out anytime in the near future, even in economically developed countries. Cash still serves a purpose for a huge amount of the world, and offers a reliable alternative payment method to digital.
However, new technologies such as central bank digital currencies (CBDCs) are moving in which suggest a further move away from cash, and many businesses are also pushing digital transactions.
Caleb is a writer specialising in financial copy. He has a background in copywriting, banking, digital wallets, and SEO – and enjoys writing in his spare time too, as well as language learning, chess and investing.