27 June 2018
Is the world ready to say ‘good riddance’ to cash?
Although the use of cash varies between countries, there are signs that point to the possible end of banknotes and coins. In Sweden for example, for only 13 percent of payments cash is used. According to scientists at Stockholm’s Royal Institute of Technology – the largest and oldest technical university in Sweden – that percentage could work its way down to zero in less than five years. In South Korea the central bank has set a 2020 target to phase out coins. And in cities in the United Kingdom and the United States, the number of shops with signs that quote ‘no cash, please’ is increasing rapidly.
A cashless society has its advantages. The increased convenience of a financial transaction without cash is probably the main motivation to go digital, as well as its increased level of security. After all, tax evasion is harder to commit digitally. In addition, cash no longer has the advantage of it being the means for fast transactions, as instant electronic payments significantly reduced the transaction speed from days to seconds. Also, it is much easier to keep track of your expenditures because all transactions are on record. Besides that, a country going digital simply saves money because counting, distributing and printing cash costs up to 1.5 percent of GDP.
The speed at which cashless payments are embraced in some countries indicates that everyone welcomes this major development. But is that true? In some European countries serious doubts are now appearing. For example in Sweden, where the central bank warns that a totally cashless economy could be harmful to tourists and more vulnerable members of society, such as the elderly and poor. Meanwhile, Bjorn Eriksson, a former national police commissioner and head of Interpol, said there are still around a million people in Sweden who will not be able to rely on cards for one reason or another.
Matt Dillen, leader of the Swedish parliamentary review into cash use, added that if the disappearance of cash occurs too quickly, it may become difficult to maintain the infrastructure needed to handle the remaining cash. In the Netherlands, De Nederlandsche Bank (DNB) has also expressed its concerns about a cashless society. DNB supports digital payments, but also believes that there is still a necessity for an analogous back-up in times of crisis, technical disruptions or debt relief.
In Germany, Franz Seitz (Weiden Technical University of Applied Sciences) and Malte Krueger (University of Applied Sciences Aschaffenburg) concluded in their scientific publication on behalf of the central bank of Germany that cash cannot be replaced by a perfect electronic substitute. They state that a digital payment instrument that offers a combination of anonymity, offline usability, open access for all and no transaction limits is too risky for users. And how well are we really protected against cyber fraud?
Ready for cashless society?
Governments and banks must ask themselves whether the population is ready for a completely cashless society or not. Are we on the right track or are we walking down the path to this new development too fast? And do people really want a completely cashless world?
The Swedish Central Bank, the Riksbank, is looking for answers to these questions, as it is currently carrying out an investigation. In this report, Riksbank studies the effects of a cashless society, the bank’s future role and the impact of this development on consumers. The results will be published this summer. Other countries should keep an eye on this study, as Sweden is well-known as a payment pioneer. Hopefully this study will provide more insights this summer. To be continued.