Health + Tech /05 Jul 2018

Is the Future Cashless?

While Americans may be relatively accustomed to using Apple Pay or digital Starbucks gift cards along with traditional cash and credit cards, cash is almost an artifact of the past in China. On the streets of Chinese cities, you will see people making purchases by scanning their phones regardless of whether they are buying dumplings from a street vendor or purchasing electronics in a department store. With digital payment apps like AliPay and WeChat Pay, the cashless future seems to already have become the present in China.

Beyond the convenience of not having to carry around a physical wallet or having to wait around for change, going cashless reduces the risk of theft. Businesses can also reduce manual accounting costs with less bills and coins to count. The salad chain Sweet Green has already implemented a no-cash policy in their stores.

Consumers and businesses are starting to favor digital payment over bills and coins, and governments around the world seem to be extremely eager to transition to a cashless society. Starting July 2019, the Australian government has gone so far as to prohibit cash transactions over $7,500, though cash already only makes up 10% of all transactions in Australia. In India, the government banned 500 and 10,000 rupee banknotes in 2016. Scandinavian countries like Sweden and Denmark are also trying to wean citizens off cash. Nordea, one of Norway’s largest banks, has refused to accept cash since 2015.

There are some obvious reasons for governments to be in favor of financial digitization over cash. After all, having records of every transaction makes lawbreaking more difficult for tax evaders, money launderers, and black marketers. If society truly becomes cashless, costs for minting coins and printing bills will also be eliminated. In addition, digitized money makes it easier for central banks to implement monetary policies–which may or may not be a good thing depending on who you ask. Central banks of Japan, Sweden, and Denmark have been testing out negative interest rates, a mechanism for combatting low inflation by charging commercial banks for keeping money in accounts. Theoretically, as these charges climb to a certain level, it will result in customers rapidly withdrawing cash from their bank accounts. Completely digitizing money will eliminate such a risk and give banks more room to experiment with monetary policy. A cashless society will also give the government more control over other areas like capital flow, since on-the-record digital currencies can be better prevented from crossing the border, unlike paper currencies which can be taken out of the country easily. Recent financial crises have further incentivized more countries to tighten capital controls.

Perhaps the biggest downside to going cashless is the loss of privacy for the average citizen. Unlike cash, digital transactions are all permanently recorded. If everyone goes cashless, there will be a treasure trove of data about personal spending that can be taken advantage of by cybercriminals and intelligence agencies. Corporate advertisers can also obtain information about purchasing patterns which they can then use to manipulate consumers into buying more.

Not having physical bills in your wallet will also lead to less financial independence. People will rely on banks to store all of their wealth, which can be dangerous in times when banks fail. During natural disasters, mere power outages can also strip people of their ability to make transactions. Governments will be able to intercept payments and freeze the accounts of suspected criminals at any time. Therefore WikiLeaks, which has been targeted by the government, resorted to using bitcoin. Cryptocurrencies have been proposed as the antidote to privacy loss in a society where transactions are becoming increasingly monitored through cashless payments. Although bitcoin’s decentralized nature offers users more anonymity than most other forms of digital payment, there are still ways to trace bitcoin transactions back to the user. Nothing is as anonymous as physical cash.

Though cashless payment methods offer day-to-day convenience, there is a major tradeoff of privacy and personal financial independence. Nevertheless, society seems to be trending towards the usage of more cashless payment systems as both powerful private and public sector institutions are keen on endorsing them. However, there will be delays along the way, such as difficult transitions for the elderly and the impoverished, as well as growing distrust towards established institutions.

If you're interested in writing for International Policy Digest - please send us an email via submissions@intpolicydigest.org