More and more countries are leaning towards cash-free economies, where the need for paper money would be completely eliminated.
Though some feel that a digital economy would offer a number of benefits, such as increased security and decreased counterfeiting, others feel that a such a world would usher in a new era of Big Brother.
India Leads the Push for a Cashless Economy
India recently made headlines with its aggressive demonetization policies.
Ostensibly to combat counterfeit currency, corruption, and black money, on November 8th, Prime Minister Modi invalidated 86% of the nation’s circulating currency. In an announcement that took many by surprise, he stated that existing 500- and 1000-rupee notes would only be valid for 4 more hours, after which they would have to be exchanged for newly designed banknotes.
In India, 90% of transactions are made in cash, almost half of the population doesn’t have a bank account, and 1 billion Indians are without smartphones. So it’s no surprise that this move caused a significant amount of chaos. Long ATM lines, unpaid wages, and the emergence of a barter economy are just a few issues that have arisen since the transition.
Critics have claimed that the problems India is trying to fix – black money and corruption – are unlikely to be affected, since such criminals often hold money in overseas bank accounts and property holdings.
Despite these downsides, proponents feel that cashless is king. E-money stocks have surged, digital payments have soared, and India’s IT Minister predicts that the country’s digital economy will grow to $1 trillion over the next few years.
Some even predict that POS will become “redundant,” or at least look completely different, since people will “just use their thumb” to pay.
The Worldwide Trend Away from Cash
Other countries, from Zimbabwe to Korea to Sweden, are also leaning towards cash-free economies. Each country has its own reasons. As mentioned in the November newsletter, Zimbabwe’s diminishing cash supply has rendered much of the nation reliant on debit cards.
Other countries also feel that a cashless future is at hand.
Sweden, for instance, is at the forefront of the cashless movement. In part due to the expediency and efficiency offered by digital payments, the country is slowly transitioning to plastic and digital payment options. Many of the country’s banks, for instance, no longer dispense cash.
Korea is also leaving paper currency in the past.
Koreans are carrying less cash and using more credit cards each year, which is a good thing, according to the head of the research center at the Credit Finance Institute. A digital economy, he claims, will cut costs as well as crime and corruption. The Bank of Korea is planning for a country without cash by 2020.
Is America Next?
A 2014 survey by Bankrate.com found that 1 in 10 Americans carried no cash in their wallets. Younger generations, also, are even using digital payment services, like Venmo or Paypal, to exchange cash and reimburse one another for expenses.
Despite the fact that America leads the world in most areas of technology, including POS and payment processing, many still cling to paper money.
Former Treasury chief of staff Mark Patterson stated that many Americans still dislike paying with devices. And, he adds, many Americans remain “unbanked, making electronic payments impossible. As long as there are babysitters, bellhops, doormen, street vendors, and Christmas stockings, there will be cash.”
Pros and Cons of a Cash-Free World
In a world without paper currency, there would be no reason to hold up a retail store. And there would be fewer reasons to mug someone or snatch a bag on the street. Though digital currency may be vulnerable to cybercrime, the threat of physical violence would be significantly reduced.
Although paper money has its drawbacks, it also allows offers a certain degree of financial freedom to the individual, who can store physical cash in safe places.
Some worry that a digital-only world would hand over far too much power to the government. If the government or a bank decided to freeze a person or a business’s bank accounts, for instance, then they would be completely financially paralyzed.
And, as mentioned, cash lets waiters, bellboys, and babysitters to accept tips for their services.
Though a cash-free society may not happen within the next few decades, if an emerging economy like India can make the push for a cashless economy, then don’t be surprised if the rest of the world eventually makes the shift.