The Strategist

Experts’ debate: what does a cashless society mean?


09/16/2019 - 09:32



The phenomenon is only just coming into debate but has been underway for many years: as time goes by, economies resort less and less to cash for payments, and increasingly to digital means. If cash is no longer king, what can we expect our societies and economies to look like tomorrow?



The lay of the land
 
A century ago, purchases as large as houses were often still made with cash, leaving “immaterial” payment means to the very top of the economy. Then came checks and credit cards, which gradually eroded the position of cash in our economies. Today, we have more payment methods than we can count: cash, check, debit card, credit card, wire transfer, swift payment, PayPal, NFC payment, and many others. But as cash had to make room for its competitors, various public and private organizations started daydreaming about how life would be if cash disappeared completely. Well, put simply, some would win, and some would lose, in the shift. The debate therefore hinges on many different parameters and unfolds differently in each country. Scandinavian countries are among the most cashless countries in the world, and it’s hard not to link that to the fact that Northern peoples have traditionally placed immense levels of trust in their government. Germans, on the other hand, have always resisted the cashless revolution - as they remember what can happen when citizens put their entire fate in the hands of an all-powerful State. Many experts have addressed the matter, bringing perspective and nuance into the debate.
 
The upsides of a digital economy
 
Banks would be the first to benefit a cashless world, and they barely hide it. Cash represents the least convenient, most dangerous and most expensive form of money which banks handle. Banknotes must be counted, transported, distributed, collected, changed, etc., all at the expense of the bank. It is therefore unsurprising that they are keen to get rid of this medium, in favor of “electronic money” which can be handled in a far easier way. Banks would thus increase their profits and provide their ensuing share of revitalization to the overall economy. In addition, the deletion of currency would annihilate the risk of bank runs, which send shockwaves throughout economies: if cash didn’t exist, citizens would be unable to withdraw their funds, and banks would be secured. Citadel professor Richard Ebeling, writes : “With nominal interest rates in the United States and some other places around the world still at historical lows (even in the face of recent Federal Reserve rate increases), Rogoff points out that many central bankers hope that more direct fiscal policy will carry the weight of countercyclical activities in the face of any serious recession that may come.”
 
Public agencies would also benefit from all-digital economies. The argument according to which tax evasion occurs mainly through cash is, in fact, obsolete (tax evaders have far more modern and efficient systems within the digital world than suitcases full of heavy cash). But large economic bodies, such as central banks, are often blind sighted by cash. When a public measure is launched, central banks need to measure the effects of the reform, and the feedback is obtained through monitoring computers. The cash segment of the economy is therefore hard to measure because it evades central control. Finally, even though the numbers involved are microscopic, cash is often linked to criminal activities - although banning it would amount to limiting the freedom of the innocent majority, in sanction for the abuse of a small minority.
 
But many looming dangers
 
The risks entailed by a cashless revolution are many. Social inclusion experts fear that an all-digital economy will further disenfranchise the poor, who traditionally have little access to banking services. Professor Sylvain Charlebois, from Dalhousie University, explains : “Almost a million Canadians don’t have a bank account, or a credit card, or a debit card, and so that’s problematic. So, if you are to go cashless, 100 percent, you are excluding a segment of the population that has less means.” Specialized charities see in the demise of cash the death of one of the last remaining opportunities for old people to interact socially, as they visit the store or hand a note to their grandchildren. Professor Steve Worthington, from the Swinburne University of Technology, writes : “About 17% of the British population – over 8 million adults – would struggle to cope in a cashless society, the report says: While most of society recognises the benefits of digital payments, our research shows the technology doesn’t yet work for everyone.” Environmentalist agencies are suspicious of the large hidden cost of the digital era. Toby Miller, professor of cultural industries in London, explains : “suggestions that we live in a dematerialised world are not only exaggerated; they are doing more harm than good. One person's cloud is another's pollution, and one person's mobile is another's enslavement. From electronic waste to conflict minerals, the new media leave an indelible mark on bodies and the Earth they inhabit.” Cyber specialists have identified that any successful attack either on the power grid or on telecommunications systems could cripple our economies in a few hours.
 
Overall, it appears that the lowering trend of cash is relatively harmless, or is even advantageous in some cases, but only if the free choice of citizens is respected. In some cases, people will find cashless payments more convenient and, if they can use them, it makes the world a better place. However, if cash is fully forced out of economies by corporate plans and governmental authority, it will indeed open a pandora’s box, and reverting will be nearly impossible





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