Rosanagh De Mestre was highly commended, in the 14-15 age group in this year’s Young Financial Journalist competition for this essay, which outlines why the digitalisation of cash benefits society.
Covid-19 and cash
What do a farmer with a toothache in the Galapagos Islands and a shopper tapping their credit card to pay for a toothbrush in the UK have in common? Both have oral hygiene on their minds, but the answer is that they can both pay for their dental care without cash.
Over lockdown, residents in the Galapagos islands turned to bartering to help them survive the Covid-19 pandemic. Within their contained community, it was very successful. On a larger scale however, bartering has drawbacks preventing it from being a long-term financial system. By contrast, the march to a technology-based cashless society seems relentless, but that too brings its share of challenges and successes.
The benefits of digitalisation
It is undeniable that electronic transactions have benefits. They can reduce money-based crime. If bank cards are stolen, they can be blocked. Other forms of cashless payment cannot be stolen from at all. In a fully cashless society, there would be less pickpocketing, petty theft of cash or traditional bank robberies.
Money laundering (when illegally obtained money, often cash, is concealed, usually behind a legitimate business) would also be drastically reduced. A cashless society means it is easier for the police to track where money has been, as there is a clear data trail of transactions.
Criminals are nothing if not ingenious, however. While cash-based crime may be reduced, cyber-crime such as hacking, and phishing are likely to increase. The digitisation of payment methods also brings with it concerns about increased state control and privacy.
The e-yuan is a Chinese crypto-currency, issued and controlled by China’s central bank (unlike most crypto-currencies which are not government issued). It allows the Chinese government to track transactions leading to opposition from groups who think that digital cash should be anonymous, akin to physical cash.
Nonetheless state interest in digital currencies is growing as shown by recent proposals for a Swedish e-currency which would be issued in partnership between the central bank and private providers.
Another significant benefit of a cashless society is its convenience. Handling cash is literally a dirty job (many businesses have stopped accepting cash during the pandemic for this reason) and an industry in itself.
Protecting money from being stolen costs £17.8 billion annually. For small businesses this expense can be crushing. A cashless society is also convenient and efficient for customers.
Achieving financial inclusion
As expedient as it may seem, though, a cashless world would negatively impact some of the most vulnerable in society. In 2018, 1.7 billion adults worldwide did not have a bank account. Many of these people are from low-income households, lack documentation, cannot afford fees for a credit card or do not have a smartphone for online banking.
World-wide, women are disproportionately affected. Older people too, as they are often less amenable to new technology. And the homeless who may not have the provisions to go cashless and often rely on cash contributions to survive.
These concerns surrounding financial inclusion aren’t insoluble. Governments and think-tanks examining going cashless have come up with many innovative ideas to combat these problems.
One idea is to use clear, simple payment methods (simplicity is vital, especially for the elderly who may struggle with technology) which are available with limited access to bank accounts.
An example of a successful system is the informal mobile money transfer service, M-Pesa. It launched in Africa in 2007 using pre-paid mobile phones as the way to transfer money and carry out other financial transactions between users who did not have bank accounts.
Another interesting way that a cashless society could promote financial inclusion is by enabling governments to provide a minimum payment for citizens. With more advanced technology, this money could be reserved for payment of essentials such as food and rent.
These and other similar ideas remain relatively under-explored. The Financial Inclusion Taskforce was closed in 2011 – and needs close focus to ensure that people on the margins of society are fully and fairly included.
For most of society, the benefits of being cashless outweigh the negatives. But as the covid-19 pandemic rapidly pushes us towards a cashless world, we must not forget those who may struggle without coins and notes.
So, when you next tap your credit card, think about the people who are not able to do the same.
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