A cashless society describes an economic state whereby financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital information (usually an electronic representation of money) between the transacting parties.
Cash is still the predominant method of payment in most European countries”, but its proportion among retail payments is on the decline. Since the euro was introduced as a currency, the Eurozone has seen a dramatic increase in the use of cash. Given this contradictory picture as it relates to the use of cash and digital payments, where is the world headed in terms of achieving cashless societies? Let’s take a closer look.
Benefits / Pros of a Cashless Society
Those with the technological ability to take advantage of a cashless society will likely find that it’s more convenient. As long as you have your card or phone, you have instantaneous access to all your cash holdings. Convenience isn’t the only benefit. Here are some other benefits.
Lower Crime Rates
Carrying cash makes you an easy target for criminals. Once the money is taken from your wallet and put into a criminal’s wallet, it’ll be difficult to track that cash or prove that it’s yours. One study by American and German researchers found that crime in Missouri dropped by 9.8% as the state replaced cash welfare benefits with Electronic Benefit Transfer (EBT) cards.3
Automatic Paper Trails
Similarly, financial crime should also dry up in a cashless society. Illegal transactions, such as illegal gambling or drug operations, typically use cash so that there isn’t a record of the transaction and the money is easier to launder. Money laundering becomes much harder if the source of funds is always clearly identifiable. It is harder to hide income and evade taxes when there’s a record of every payment you receive.
Cash Management Costs Money
Going cashless isn’t just convenient. It costs money to print bills and mint coins. Businesses need to store the money, get more when they run out, deposit cash when they have too much on hand, and in some cases, hire companies to transport cash safely. Banks hire large security teams to protect branches against physical banks’ robberies. Spending time and resources moving money around and protecting large sums of cash could become a thing of the past in a cashless future.
International Payments Become Much Easier
When you travel, you may need to exchange your dollars for local currency. However, if you’re traveling in a country that accepts cashless transactions, you don’t need to worry about how much of the local currency you’ll need to withdraw. Instead, your mobile device handles everything for you.
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Disadvantages of a Cash-Free World
Depending on your perspective, going cashless might actually be more problematic than beneficial. Here are some of the major downsides associated with a cashless financial system.
Digital Transactions Sacrifice Privacy
Electronic payments aren’t as private as cash payments. You might trust the organizations that handle your data, and you might have nothing to hide. However, the more information you have floating around online, the more likely it is to wind up in malicious hands. Cash allows you to spend money and receive funds anonymously.
Cashless Transactions Are Exposed to Hacking Risks
Hackers are the bank robbers and muggers of the electronic world. In a cashless society, you’re more exposed to hackers. If you are targeted, and somebody drains your account, you may not have any alternative ways to spend money. Even if you’re protected under federal law, it will still be inconvenient to restore your financial standing after a breach.
Technology Problems Could Impact Your Access to Funds
Glitches, outages, and innocent mistakes can also cause problems, leaving you without the ability to buy things when you need to. Likewise, merchants have no way to accept payments when systems malfunction. Even something as simple as a dead phone battery could leave you “penniless,” in a sense.
Economic Inequality Could Become Exacerbated
Unless special outreach efforts are made, the poor and unbanked will likely have an even harder time in a cashless society. If smartphone purchases become the standard way to transact, for example, those who can’t afford smartphones will be left behind. The UK is experimenting with contactless ways to donate to charities and homeless individuals, but these efforts may not be developed enough yet to substitute cash donations.
Payment Providers Could Charge Fees
If society is forced to choose from just a few payment methods, or if one app becomes the standard payment app, the companies who develop these services might not offer them for free. Payment processors may cash in on the high volumes by imposing fees, which would eliminate the savings that should come from less cash handling.
The Temptation To Overspend May Increase
When you spend with cash, you recognize the financial impact by physically taking the cash out of your pocket and giving it to someone else. With electronic payments, on the other hand, it’s easy to swipe, tap, or click without noticing how much you spend. Consumers may have to rethink the ways they manage their spending.
Negative Interest Rates Could Be Passed Onto Customers
When all money is electronic, negative interest rates could have a more direct effect on consumers. Countries like Denmark, Japan, and Switzerland have already experimented with negative interest rates.
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