Money fulfills several essential functions in the economy, serving as a medium of exchange, store of value, unit of account, and standard/deferred payment. Through the years, money has taken a variety of forms with different characteristics.
In economics, we can define cash as money in the physical form of currency - banknotes, and coins.
In Western Europe, coins, silver, and jewelry have been the only form of payment for centuries. Paper money had been used in China in the Tang Dynasty, and after 500 years, it became prevalent in Europe. The long history of cash has developed symbolism that coins and banknotes have for people. However, since the 1980s, credit and debit cards, electronic money transfers and mobile payments have been taking the place of cash.
People are more frequently debating about the probability and future shape of the cashless society where all financial transactions would be handled through digital forms. According to the TechHQ, one UK government-commissioned study predicted that by 2030 “only 1 in 10 transactions would be made with paper and coin.”
So, is the cashless future a solution to many financial problems?
First, let’s look at the advantages of resigning from cash in favor of digital forms of money.
This solution could significantly reduce the risk and costs of business, mostly by eliminating the threat of using counterfeited money. Digital money also facilitates monitoring fraud to some extent. According to the Mordor Intelligence report: “Italy has one of the lowest rates of credit cards used in the European region and has the highest VAT frauds in the region.”
We shouldn’t also forget about the fact that operating in cash has its cost. As The Economist states, operating in cash costs countries about 0.5% of their GDP every year.
Also, the demand for digital payments and consumer propensity toward digital transformation is continuously growing. Accenture North America Consumer Payments Survey proved that: “68% of Generation Z consumers are interested in instant person-to-person payments more than any other age group.” G4S Cash Report has also shown that “card transaction volumes, in particular, have grown significantly in all countries except Kenya, overtaking cash as the most widely used payment instrument at the point of sale in some countries.”
Additionally, cashless transactions can be completed faster than the ones with banknotes and coins.
Moreover, due to the current pandemic, many retailers favor using contactless payment methods. The circulation of banknotes exposes us to direct contact with harmful microorganisms, including the SARS-CoV-2. According to Jodie Kelley, CEO of the Electronic Transactions Association, people who are currently “much more conscious of what they touch” tend to choose cashless payments mostly due to psychological factors.
Of course, we shouldn’t forget about some serious disadvantages this transformation could bring.
The most fundamental one is that people trust cash. Coins and banknotes are free to use and widely available for consumers. They can’t be hacked or blocked by discharging transaction-intermediary device. Additionally, they don’t need any specialized hardware or software and offer a particular level of anonymity. On the contrary, in a cashless society, all payments are traceable, which can be a danger for our private data.
Also, when people operate with physical forms of money, they tend to be more conscious of how much they spend.
One of the most significant issues related to digital money is the threat of cyber-attacks, which can happen at any time and in any form.
Finally, the most severe drawbacks of cashless payments are the problems with accessing technologies or the inability to use them in many places across the globe. According to UNESCO, only 55% of households globally have an Internet connection.
Summary
It’s important to stress that despite the advantages that a cashless future could bring, it highlights some serious obstacles connected with severe inequalities experienced by people. Additionally, the predictions about cashless society have circulated for more than 40 years. Meanwhile, cash is still a widely used payment instrument in many countries.
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