The advent of the cashless society
We’ve heard this before. Cash is obsolete, inconvenient, and archaic so it should disappear.
This time might be true.
The end of cash is always round the corner and yet, never seems to materialize. Do we really need cash in this time and age? What are the reasons why we are still using it? What can we replace it with?
Types of currencies
Mainly, there are two types of currencies:
- Fiat currencies. The money we know. Dollars, Euros, Pounds Yens. This could be used as cash or in the form of electronic transactions.
- Cryptocurrencies. Bitcoin, Ethereum, Cardano, Iota, Facebook Libra, and many others. These are the digital money of the future, they have no physical form and all transactions are made online.
In the race to go cashless there are several possibilities. One is simply to use Fiat currencies in electronic form. That’s what you do when you pay with your credit card in dollars, yen, or euros. In that sense, the change is not that dramatic. At the end of the day, you are still using currencies that are controlled by the central bank and credit cards from financial institutions.
The big revolution will be when people start using cryptocurrencies like Bitcoin or Ethereum. These are outside the control of governments, are protected from inflation and are peer to peer. If you live in a developed country, you might not see the point of switching to crypto -the dollar, Euro and yen are very stable currencies with low inflation and the central banks that support them are solid- However, if you live in South America, Africa or most parts of Asia (80% of the world population) the currencies you are forced to use are worthless or can become so overnight due to inflation and instability. Would you take payment in Bolivars, or Pesos, or Yuan’s? Me neither.
At a big scale, governments and big corporations can circumnavigate this instability by using dollars, that’s what they’ve been doing for decades. The problem is, the dollar is losing its value as an international currency, and people are switching to Bitcoin. When an Argentinian, a Venezuelan, or a Chinese person manages to save some money, they either put it in gold or Bitcoin. It’s protected against inflation, the government can’t touch it and it tends to go up in value since there is a limited supply.
Besides, there are 2 billion unbanked people in the world — Citizens that can’t open a bank account anywhere, even if they have cash — Their only option, until recently, was to use cash for all transactions. Now they have more choices: mobile payments and Crypto, and through this, they could have new opportunities to save, trade, invest, and even borrow.
The unbanked usually live in countries where the currency is not stable either, so, the motivation to move to crypto is high. These 2 billion will lead the way not only to a cashless but also to a Crypto society.
The advantages of cash
These are some of the reasons why we still use cash:
- Some vendors only take cash
- Black market transactions
- Peer to Peer transactions
- Security. When you pay cash your credit card details are safe
Advantages of going cashless
Going cashless has many advantages. Some of them are:
- No counterfeit
- Better exchange rates
- More control over your money. There is a record of every transaction that can be used to check expenditure
- Disputes. You can reject a payment after is being made
- Insurance. Most credit card vendors provide insurance
- Theft. It’s harder to be robbed of your money with electronic systems and even then you are usually protected
- Inflation. In countries like Zimbabwe or Venezuela you need a buck load of cash to buy a coffee. Too heavy
Functions of money
We use money and cash because they provide some useful functions. The most important ones are not exclusive to cash so that makes it expendable.
Medium of exchange
Before we had money we used to barter. That was a very inconvenient way to do transactions. Among other things, money is divisible, unlike other goods like a cow, and that brings flexibility. In order to ease transactions money was invented and recently electronic money appeared in the market to make it even more convenient to buy and sell stuff.
Store of value
Money is easier to store than, let’s say, corn or wheat, therefore it is a better vehicle as a store of value. The only problem is inflation. The currency of choice has to be stable or appreciate in time to preserve its value. In this regard, property, gold, or silver has been used for this and more recently Cryptocurrencies.
Hard-cash under the mattress is not a very safe way to keep your money.
Unit of account
Money is also useful to measure the value of goods or services. For this function cash is not necessary either, so it could be replaced.
Money and traveling
I travel a lot and try to avoid cash. The reason being is that I don’t like converting money into the local currency backward and forwards. It’s messy, you always feel ripped off and the exchange rate is never good. Of the 40+ countries I’ve visited for work or pleasure, only in Japan, China, Argentina, and Brazil I needed to exchange money. And that’s because I like to visit Mom and pop stores that are not used to the credit card transactions.
The US seems to be, for me at least, the best equipped to deal with no cash. You can buy anything from a coffee to a hot dog with your phone. For years I’ve only used cash for tips over there.
These are some examples of countries attempts to go cashless:
- Sweden. Cash has been in the decline in Sweden for years now. Not only the use of credit cards is on the rise but there is a popular app called Swish that makes it easy to pay with the phone. Only about 1% of all transactions are cash. Cash is disappearing so fast that the government is worried about vulnerable people in crisis situations that could be left stranded during a crisis or during system failure.
- Kenya. In 2007 Kenya introduced a mobile payment system known as M-pesa successfully, and managed to significantly reduce the use of cash. In rural areas, access to banks or cash machines is difficult. Also most of the population can’t open a bank account so they have no access to the system. On top of that, inflation is a big problem in some African countries so avoiding cash is very convenient for preserving value.
- China. There is a big push from the government to get rid of cash transactions. Vendors like Alipay and Wechat pay are very popular accounting for 60% of all transactions. It is even possible to give money to beggars using electronic systems. In this case, the reason behind this change is probably an attempt to control the population even more. China is a superpower and also has a big rural population that lives near poverty. If they manage to achieve 100% cashless others countries in the region will follow suit.
- The UK. It’s one of the leading countries in the cashless movement. In this case there is no top-down reason or a particular problem with cash. It’s just that people find it more convenient to pay electronically.
Problems with cashless societies
- Reliance on technology. As the world is becoming more interconnected and mobiles phones become more ubiquitous this is becoming less of a problem for 99% of the population
- Safety concerns. Many dangers online. Spammers, hackers, identity theft and so on. But we are facing these dangers on a daily basis anyway, with or without cash, so that wouldn’t be a barrier either
- Privacy concerns. Nothing is more anonymous than cash. Some Cryptocurrencies provide total anonymity for those who are interested. Most people don’t need such invisibility except perhaps in specific situations.
- Big brother. The reason why China wants to go cashless is to be able to spy even more on its citizens. That’s a concern for sure but it could be circumnavigated with some alternatives.
Cash is dead. Our love affair with the green bill or the rusty coin is finally coming to an end. This is not Pre–Christian times, we are now in the XXI century and can do without a form of payment that is 2600 years old.
I personally can’t wait. Right now in my wallet, I have Pounds, Euros, Dollars and Yen. In some draw I have funny money from third world countries that is probably worthless by now. When it’s gone I’m not going to miss it.
In fact, I’m more radical. I wish that I could go anywhere in the world and pay with the same currency electronically, let it be Ethereum or Bitcoin or any other Crypto. There was a time in which that was possible with gold. We’ve gone backward since then.
My prediction is that cash has less than 10 years left. I hope I’m right.