Although a cash-free society sounds like something out of science fiction, it is getting closer to reality every year. In Sweden you can already see signs in stores that say “No cash accepted”, cash transactions account for less than 1% of GDP, and cash withdrawals have been declining by 10% per year. At this pace, Sweden is expected to become the first cashless country by 2023.
Not only Sweden but the whole world is gradually switching to cashless payments. More and more people are relying on bank cards, online wallets, internet banking, cryptocurrencies, and other digital payment methods because they are more convenient and faster than paying in cash.
Ditching cash entirely will lead to a range of social and psychological changes that can have both pros and cons. Let’s consider what effect the transition to a cashless society may have.
Benefits of a cash-free future
Lower crime rates and less money laundering
Banks, cashiers, even passers-by are all potential targets for criminals to steal money that will be problematic to track. But things could get more difficult for criminals in a cashless future. According to the US National Bureau of Economic Research, the shift from cash-based welfare payments to cashless payments has led to a “substantial drop in street crime”.
The same applies to organized crime and illegal activities. Criminals often use cash to avoid recording a transaction and make it easier to launder money. But in non-cash payments, the source of funds is clearly identified, making money laundering more complicated.
In addition to fighting crime, using only digital payments will reduce the possibility of tax evasion and help fight corruption. Different estimates show that the UK Treasury loses about £8 billion due to cash-in-hand payments and under-reporting by taxpayers.
Lower costs for cash management
Cash management creates a lot of additional worries that non-cash payments do not have. Printing bills and minting coins costs money. A developed logistics system is required to transport cash safely, increasing the burden on business and the state. For example, banks hire large security teams to protect and transport funds. So it takes time and resources to move the money.
Counting cash can be labor-intensive to avoid inaccuracies. Due to the possibility of counterfeiting, companies may purchase special equipment for checking banknotes or not accept large bills, creating difficulties for a potential client. In a cashless future, these things can be a relic of the past.
Simplification of international payments
One of the first things that tourists do when they come to another country is currency exchange. However, if you are traveling in a country with cashless payments everywhere, you should not worry about the exchange rate or the place to buy currency. Instead, you can use a bank card or other cash-free payment method to perform an automatic conversion.
With cryptocurrencies, international payments have become even easier. Transactions can take only a few seconds and be almost commission-free, which also allows avoiding the costs of exchange rate differences. In order to make a transaction in cryptocurrency, you can buy it instantly on a cryptocurrency exchange such as CEX.IO and send it to the recipient specifying the destination wallet address.
Disadvantages of a cash-free future
Decreased transaction privacy
Cash allows us to buy something anonymously. In a cashless future, every transaction will be recorded and stored somewhere. Many people are concerned that transaction history can be used for unavoidable corporate or government purposes. For example, for targeted advertising of potential consumers or totalitarian control by the state. So the privacy issue of digital money is a major concern to civil liberties.
Cryptocurrencies can provide a certain level of transaction anonymity but it is not absolute (apart from cryptos focused on anonymity). Although the sender and recipient addresses in cryptocurrencies look like a set of letters and numbers and do not give out the owner, the transaction history is still recorded in the blockchain and is public. It means if you do not show that you are the owner of a certain address, you can remain anonymous.
Possibility of permanent transaction commissions
Cash payments are free for all participants. But payment platforms can charge consumers a commission for each transaction, and businesses will have to pay for accepting digital payments. Even if the state creates a free system for digital payments, no one excludes that the state may impose taxes as a commission.
If society moves away from cash, it would be crucial for consumers to keep track of money and minimize fees. Otherwise, the financial burden on users will only increase.
Reducing control over spendings
When you pay in cash, you see that you are giving a piece of paper to someone, and our brain is aware that we have given something to get something in return. From a psychological point of view, there is a clear awareness of the exchange process. But when we pay with a card or smartphone, we do not see the exchange process in the usual way for us.
Numerous studies show that people are more likely to pay more and go into debt using bank cards and cashless payment methods. This is because we do not have the same emotional attachment to digital money as we do to cash. In a cash-free future, people may have to rethink how they manage their spendings or they may face increased financial difficulties.
We are moving to a cashless future quite fast but it’s important not to forget about unbanked people that will likely have an even harder time in such a society. For instance, Sweden found that some groups were getting left behind when making plans to shift to a cash-free society — as a result, they agreed to “slow down”. This suggests that the cashless future is now not so much a technological issue as a social and infrastructural one.