Now COVID has reduced us to disinfecting our spare change, is it the time to ditch cash?
This started with myself and a few friends being bored. Eventually, we decided to jump on the bandwagon and watch the new critically aclaimed Netflix show, Squid Game. In an effort to cut a long story short, money is quite integral to the premise of the show. Specifically, what people would do for money. This encouraged me to dwell on the changing face of money in our society. n any case, it seems pretty clear that that face is becoming increasingly digital. Despite the pandemic speeding this up, it’s been a long time coming. In 2019, over €152 billion worth of cashless transactions were conducted in the EU compared to around €90 billion in 20111.
This includes in-store methods like card and contactless payments but also remote methods like USSD or online transfer. The shining star of cashless transactions is Sweden. Here, the European Payments Council estimated that cashless transactions accounted for 99% of Swedish GDP in 20192. Further proven by the fact that a majority of Swedish banks do not accept cash deposits, the country is projected to become totally cashless by 2023.
Pros and Cons
This idea can cause fervent debate when mentioned so it’s important to breach both sides of the argument. Those in favour of cashlessness centre around how those methods of payment allow for greater efficiency and ease. International business is streamlined by quick currency conversion but consumers and businesses also don’t have to worry about recording expenditure, that’s always easy to find. For the same reasons, others argue how there can be greater safety under the umbrella of cashless transactions; tax evasion and money laundering are both made more difficult by the digital ‘paper trail left by cashless transactions. It’s no coincidence that the use of cash is far greater in countries with larger shadow economies3.
However, several of these arguments do not rely on certainty and as such can be effectively put down. For example, the supposed ease of cashless transactions is dependant on the user. An older person who isn’t familiar with technology could be very easily alienated or scammed in a cashless system. Additionally, no matter how strict the level of security may be regarding people’s financial data, nothing is infallible and a society too dependant on the technological infrastructure which enables cashless transactions could be made increasingly financially vulnerable. Yet perhaps one of the most important opposing arguments to a cashless society is rooted in its practical impact on its users, namely consumers and small businesses. As the exchange of cash doesn’t incur a fee it can sometimes be cheaper for small businesses to prefer cash as payment for goods or for providing wages. On the consumer side, things aren’t any better. Due to how cashless transactions decrease banks’ profits, negative interest rates are can be implemented to make up the difference, the cost of which is invariably placed on consumers: forcing payment or encouraging spending4.
Who actually benefits from a ‘cashless society’?
Other than the effects of a cashless society, a more insightful yet equally important question would be: who benefits the most?
Through this lens, we can understand that payment providers seek to gain the most from cashlessness. If we view the exchange of money as a market like any other, in a society where cash is rarely used, payment providers -like Mastercard or Visa- are able to control the market to monopoly levels due to a lack of competition -incurring fees for usage and so forth. Other major beneficiaries include businesses, whom it is thought would garner greater sales from cashless payment methods; and governments, being able to exert greater control and direct citizens’ spending. Though for better or for worse is not for me to say…
It seems that cash will always have a role in some parts of our lives, even if it’s a much smaller one in the future.
But how can we reconcile the downsides to a cashless society without diminishing the inherent benefits?
One way to minimise the power of private payment providers brought about by the transition to a cashless society would be by having government-owned & controlled payment providers instead. Although this may seem overreaching, we are all already very familiar with government-issued physical currency and fiscal policies to control or manipulate it. So, why could this not be similarly applied to cashless systems? Government ownership -full or partial- would effectively make cashless transactions a national utility. Additionally, regarding downsides like the aforementioned costs of negative interests rates society would not be transferred to consumers under a publically-owned cashless system but could instead be redistributed.
I feel like the Netherlands has been moving towards a cashless society for years, even before the Covid-19 pandemic. I haven’t had cash in years in any case. I always noticed when we were on vacation in Germany though, that they tend to do a lot of cash transactions and often did not even have an option for debit or credit card payments. Maybe it was the location, or the fact that I haven’t been back since before the pandemic, but I feel that country didn’t want to go cashless as much as the Netherlands.
Ryan, I have some mixed feelings about having government-owned and controlled payment providers. In the world where everything is traced and tracked by governments, I am not sure if I would want them to easily access my personal financial history as well.