This short-read article was written by fifth former Johnny Kershaw.
Estimated read time: 4 minutes
Cash is king? Not so much these days. What are the potential benefits of a cashless society, and what might be the downsides?
For an economy to be successful, it is reliant on its ability to carry out commerce smoothly. It is for this reason a plethora of innovations and technologies have led to numerous ways to pay for things. In the face of this, cash is still preferred for its ease of use, representing 30% of all transactions1 in 2018.
However, the decline of cash is happening all around us; in Australia there is soon to be a law banning any cash payment over $10,000. It is therefore worth examining the benefits and downsides of a cashless society and explaining why we are not quite ready for this revolution.
Practically, benefits of a cashless society are simple: you cannot just lose your money like if you were to lose your wallet; a credit or debit card can be replaced whereas physical notes are lost forever. Banks also reward customers with things like airline points.2
Day to day, crime rates would drop as there is no physical money to steal and any money laundering would be easily traced by its digital footprint. A study by American and German researchers found that crime in Missouri dropped by 9.8% as the state replaced cash welfare benefits with Electronic Benefit Transfer (EBT) cards. 3
Sceptics of a cashless society would fairly argue that the transition to a world without cash would be incredibly difficult. However, China may have proved otherwise. The country has created a QR code payment system where apps like WeChat have been made a cultural norm. Just by the downloading of an app and the scanning of a code, cash has been removed from the equation. In the USA in 2019, credit card payments totalled 4.1 trillion dollars compared to China’s payment apps which totalled a jaw dropping 41 trillion dollars. This difference is far bigger than can be explained by population difference and shows how easy it can be to transition to a cashless society.
For large providers such as visa, a cashless society is undoubtedly a desirable thing. This is primarily because of the merchant fee they receive per transaction. This fee allows them to receive a percentage of the payment as high as 2.9% every time anything is bought with a card. Another factor is the ultimate power they would hold over economies for, as private companies, they could deny service to anyone they wanted.
However, one could easily argue that this is a downside of a cashless society and this power should not be given to the CEOs of massive corporations.
Furthermore, credit cards can hurt finances in the long run. Depending on the provider, interest rates can be as high as 30% if not paid back within the set time.
A life without cash could also “make it more difficult for clients to manage their day-to-day spending”.4 A 2018 paper published by the Bank of International Settlements found that there was “a strong correlation between a person’s credit score and their propensity to consume.”5
Another concern for cashless societies is how susceptible people’s life savings would be to hacking and data breaches such as the infamous EQUIFAX affair where 400,000 UK accounts and 143 million US accounts were compromised.6 This presents a problem that, without a doubt, has a solution but one we have not yet completely discovered.
It has also been argued that a cashless society will further exacerbate economic inequality. For example, if smartphone purchases become the standard way to transact, the 5% of people in the UK7 who don’t have one will be left behind by society and stuck in a cycle of poverty.8
Examples of cashless society and an assessment of success:
In Sweden, according to the European Payments Council, cash transactions accounted for just 1% of Sweden’s GDP in 2019. The response from the people has been largely happy, but those who struggle to keep up with technical development, such as the elderly, continue to rely on cash.9 This case study showed some success but failed to address the marginalised as afore mentioned could happen.
To conclude, in the same way as gold ingots in the past, cash will disappear eventually, and this has its benefits. But, for the moment, “cash is king”10 and so long live the King!