Short Read

“Just The Bill Please”: Is the Future a Cashless One?

There is a growing movement to get rid of cash on the grounds that it is outdated and increasingly dangerous. But is a truly cashless society even possible?

“Who really uses cash anymore?” goes one popular argument in favour of doing away with notes and coins. The truthful response: not a lot people. According to the Bank of England, in 2017 debit cards officially became the most frequently used payment method in the UK, overtaking physical money. In many ways this isn’t surprising – the rapid acceleration of financial technology, or fintech, has been a key enabler in this regard. Current arrangements include methods such as Apple pay, Oyster cards, Contactless technology, RFID wristbands and fee free currency exchange cards like Monza and Revolut when travelling overseas. Yet in the not so distant future we may not even need to carry around a wallet. For this summer’s Olympic games in Tokyo the Japanese government is trialling a completely biometric system of payment for tourists, one for which the pattern of blood vessels in your fingertips alone will be sufficient to check into hotels or purchase items from souvenir stores.

However, these nascent technologies are famously fraught with risks of fraud; and the potential for big data storage to be weaponised by powerful individuals, firms or governments is a real concern. Therefore, before we pass judgement on this futuristic development  it is important to understand the scope of the arguments in favour of abolishing cash for good. 

Firstly, whilst there are situations in which the anonymity of cash may prove useful, this trait is more frequently a problem – namely in that it facilitates the financing of terrorist groups, violent crime and the black market; not to mention making tax avoidance easier. This is the case put forward by economist Kenneth Rogoff in his 2016 book “The Curse of Cash”. Given that $1.4 trillion of cash is currently floating around the US economy at the moment, each American family of four should theoretically have $13,600 worth of cash in their possession (an astronomically high figure given that people don’t tend to have large sums of cash on them at any one time). Hence, he postulates, a large proportion of the cash in the rich world supports the smooth functioning of illicit activities.  This is not exactly a ringing endorsement for hard currency.

Secondly, a cashless society would reduce risks for businesses. By removing the possibility of accepting counterfeit notes, businesses are less likely to be linked to illegal ventures and less likely to be left with worthless paper in their tills. They would also be less likely to be robbed. Cashless transactions significantly decrease the risk of burglary and employee theft (the latter of which costs US businesses a staggering $50 billion annually according to a 2017 CNBC report). 

Thirdly, it would make expansionary monetary policy more effective in the event of another economic crisis. Central Banks may deem it necessary to use negative interest rates to spur spending. Yet if cash is prevalent in a world of negative interest rates, people could avoid leaving it in a bank and opt instead to stash it under their mattress. Digital currency forces individuals’ savings into the bank meaning negative interest rates would have a greater effect on increasing consumption and investment in the economy. So if a deep recession were to arrive tomorrow, the existence of cash would be part of the problem.

Lastly, having cash in the economy isn’t cheap. It is predicted that in rich countries, the minting, sorting, storing and distribution processes cost roughly 0.5% of GDP. For the UK this equates to just over £13 billion – working out as just under half of the defence budget.

Nonetheless, the trend towards a world without cash raises a couple of fairly important concerns, particularly about the safety of the technology needed to implement it. In 2017, a KFC store in China trialled a facial recognition system dubbed “Smile to Pay” involving face scanning. Following its successful implementation, in 2018 it was extended to over 300 Chinese branches. In a world where data mining and public data breaches are not uncommon, stories like this scare many. Although some firms have shown interest in investigating the possibility of behavioural biometric identification (presumably harder to fake than physical biometric identification), there’s no doubt that financial cyber attacks and digital crime could have devastating effects in a society where all money and payment records are stored in servers and electronic accounts. Moreover, collecting hoards of data on consumers’ spending habits seems like a massive infringement on security rights. Going cashless could even give firms or governments the power to manipulate such consumption habits, nudging us to buy goods and services that we do not need or want.

Additionally, there’s an issue that going fully cashless discriminates against the poor, the elderly, youth and immigrants. These groups typically do not have their own bank account (essential for making electronic transactions) and therefore rely on cash for day to day living. This occurred in India In 2016 when, in an effort to clamp down on corruption and so called “black money”, 85% of the cash in circulation was destroyed in a bold demonetisation program. Since much of the population had little access to bank accounts and 90% of transactions at the time were in cash, GDP growth for that quarter fell below 7% for the first time since 2011 – disproportionately affecting the groups identified above.

Cash may still have some special qualities – it’s tech-free, incapable of being hacked and is accepted by one and all. Nevertheless, we in Britain are heading towards living in a cashless society. There were 11.5 billion fewer cash transactions in 2018 than in 2008, a decline of 51% – indicating that the question is not if but when. There will be road blocks along the way, but the benefits seem too hard to ignore. A gradual phasing out of cash would undoubtedly be needed, as well as robust data protection, policing and easily accessible help regarding bank accounts, online payments and e-finance targeted towards the groups most vulnerable to such a change. Cash was king, but now there’s a new sheriff in town. 

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