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Understanding the effects of a cashless society

Understanding the effects of a cashless society
Understanding the effects of a cashless society

Apple Pay, Android Pay, Bitcoin and Paypal are only some of the latest transaction technologies available to us. However, despite these advancements, cash still constitutes a large percentage of the money supply in many countries. So does cash still remain king?

In the USA, policymakers are making efforts to abolish $50 and $100 notes. In Sweden, citizens use mobile payment solutions to buy street food, donate to the homeless or shop at flea markets, and only 16% of the population makes transactions with cash. Singapore eliminated their highest note ($10 000) in 2014. Greek citizens are now required to declare cash amounting to more than €15 000 stored anywhere other than a bank. The Venezuelan government has banned the 100 bolivar note. Australia has proposed a ban on the $100 bill. And even the European Central Bank plans to stop producing €500 notes by 2018.

While technologies like encryption, smartphones and online banking make cashless transactions more viable, efficient and convenient, it’s actually governments and central banks that are the primary initiators in the removal of cash from society, and these are their reasons:

  • Fight crime. Eliminating high denominations of bills from circulation would make it harder for terrorists, drug dealers and money launderers to move large amounts of cash around the world.
  • Cost cutting. Handling cash is expensive for banks.
  • Efficiency. Cashless transactions are also faster and more efficient, which leads to easier compliance and reporting.

The case for India

In November 2016, Indian Prime Minister Narendra Modi demonetised the 500 and 1 000 rupee notes, eliminating 86% of the country’s paper money overnight. The reason for this was because the government wanted to curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.

Citizens were allowed to exchange their notes for a higher denomination with a limit of 4 000 rupees per person. Amounts above this had to be handled by a bank, but this proved to be problematic in a country where only 50% of citizens have a bank account.

But financial inclusion is essential for all citizens

India isn’t the only country where financial inclusion is low – in SA almost a quarter of the population (22%) do not have formal bank accounts, according to the 2016 Finscope survey.

So in the global battle to fight financial crime, the average citizen will be caught in the crossfire, leaving the argument for cash wide open.

Did you know that in South African 6.1m South African SASSA grant recipients withdraw all of their money on payment day and use that cash for the rest of the month? So a cashless society will have significant repercussions on millions of people in South Africa and other developing economies. In addition, for the rest of the population who are not as affected by depleted cash availability, a cashless society could still have impact; mainly on civil liberties.

  • Privacy. Cashless payment solutions can only operate with the help of an intermediary or third party, and governments would have access to your personal transactions. They would even have the power to ban certain transactions like gambling.
  • Savings. Legislation would prevent you from saving funds anywhere other than a bank and money saved in a bank could be susceptible to bank bail-in scenarios. The elimination of cash makes negative interest rates (NIRP) an option for policymakers, and savers would have very little power to react to monetary events like inflation or deflation.
  • Human rights. When implemented at a rapid rate, demonetisation could violate people’s right to life and food, as it did in India. It would also adversely affect small businesses and other enterprises or individuals who work in the informal sector.
  • Cybersecurity. With the digitisation of wealth, the risk of cybercrime increases. The damage of identity theft or hacks would also be far worse and could destroy an individual’s entire savings.

Where to from here?

If the past is anything to go by, the future debate about the need for cash, will continue to rage for some time. In 2015 there were a total of 426 billion cashless transactions worldwide, a 50% increase from 2010. Subscribe to our blog to make sure you stay updated with all the developments in the global payment industry.

You can also help keep cash alive by installing an ATM in your business so that your customers who rely on cash have easy access to it. And you can keep up with the changing times by ensuring that you have the appropriate POS (point-of-sale) solutions for alternatives such as card payments.