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Say goodbye to cash

by Elliot Campbelton
March 2020

Somewhere in the near future physical money will become like Relics of a different age. So what’s the rush to get rid of cash? And what’s the cost?

Let’s face it money is cumbersome for consumers and banks. Cash needs to be minted, transported, securly stoted and it needs to be sorted at the till. As such operating in cash costs countries about 0.5% of their GDP every year. 

But cost isn’t the only incentive to move towards a cashless future, demand is rising primarily demand from the young generations who are looking for fast, easy-to-use means to make payments. 

Digital payments aren’t just easy for customers, It becomes easier for governments to monitor tax evasion and fraud, but there’s a downside.


The downsides

Let’s assume for example that a country that used to be democratic becomes undemocratic, with all of your transactions being centrally routed and facilitated, this leaves individuals open to a number of negative externalities, such as inference of political inclination and closer monitoring and scrutiny of an individuals actions (through the monitoring of what, when, and where you buy). 

In addition the risk of cyber-attacks, could be inherently more damaging the more transactions are handled digitally. The most recent example of this saw one hundred million Capital One customer’s personal account information stolen.


Overlooking the immediate challenges.

Despite the risks, many countries are fast moving towards a cashless society. In Sweden the number of retail cash transactions per person has fallen by 80% in the past ten years. The trend is even evident in far more cash-loyal societies. China’s digital payments rose from 4% of all payments in 2012 to 34% in 2017. While the trend is inevitable, a gradual transition is key, It will be important to have a control  on how fast the transition occures, as many people may otherwise be left behind.


Limiting powers of central banks

Going cashless is just the latest evolution of money in the modern economy but it does raise a fundamental question around, what is the value of money if it does not physically exist? Central banks enact monetary policy by exerting control over the amount of money that is in circulation. With the underlying purpose of this model being that central banks can create and inact monetary policy.

In a cashless society, the concept of what it means to own a unit of currency takes on a an ever more transient form, and further more promotes the question as to weather only central banks should be allowed to create currencies for the mass market.

Central banks are realising this, especially after Facebook made the announcement that they were looking to launch their own digital currency Libra.

The move toward cashless societies is well under way, but governments need to ensure that, as cash is phased out the vulnerable in society aren’t left behind.