Increasingly, news stories herald the arrival of the ‘cashless society’ while also proclaiming that “Cash is King” (Hinsliff, 2016; Mulhere, 2016). So what is the real story? Are we moving into a new payments world?
To understand the future of payments and financial transactions, we first need to understand the importance of cash and the ways it is used in society. We will also explore the benefits and issues associated with the use of cash, the concept of the ‘cashless society’ and look at how cash is tackled by economists and theorists.
History of cash
Before coinage, many people conducted trade using barter. Barter restricts the development of trade as trading partners do not always desire the product each other is trading and values are rarely uniform. There were, however, comprehensive systems of financial exchange set up in ancient societies that enabled trade without the use of money or barter. In both Egypt and Mesopotamia, sophisticated accounting and payment systems existed long before coins were introduced. In transactions, precious metals were recorded alongside other commodities, usually by weight, suggesting that a wide variety of objects could be used in payments.
The Lydians were the first people to strike coins from gold and silver. Coinage quickly spread around Greece and later the Romans utilised coins.
Cash in Theory
There is debate among economists regarding the origin of cash, its nature, and primary function. Is money created by the government or by the market? The answer to this question is of critical importance for understanding the business cycle and finding the appropriate policy tools to eliminate unemployment and reduce inflation (Kaboub, 2013).
Virtually every transaction in the economy results in a payment. In making these payments, households and businesses make use of a wide variety of payment instruments, including cash, card payments, direct debits and credit transfers (Kruger and Seitz, 2014). Each of these instruments fulfils specific user needs, but also generates costs. The size of these costs and the scale of the economic benefit have increasingly become a topic of academic discussions over the last years and, at times, the focus of general public debate (Kruger and Seitz, 2014). It is important for governments, non-government organisations, banks, and corporations to understand the costs, benefits, and impact different types of payments have on economies and societies.
A cashless society is a “society in which all bills and debits are paid by electronic money media, for example, bank and credit cards, direct debits, and online payments” (Law, 2011).
Increasingly, countries around the world are making definite moves towards a futuristic cashless society (Manur, 2016). In the push for a digital economy, cash is often portrayed as an obsolete, inefficient system of payment and people who regularly use cash as technologically backward (Manur, 2016). In Sweden, eighty per cent of all transactions are made by cards and using the mobile payment app, Swish (Swedish Institute, 2016).
A number of problems have arisen around the transition to a cashless society. One concern regards privacy, with a completely digital economy people’s privacy is at risk (Haaramo, 2016).
Another concern regards the most vulnerable within society. There are 1m adults in the UK without a bank account and groups, such as the elderly, poor or homeless, could be further marginalised by the shift to a cashless society (Williams, 2016). Those who rely on cash and branch services are among the most vulnerable within our society, and these people find barriers, both habitual and practical, in accessing digital services (Williams, 2016). In Sweden, where cash is becoming increasingly rare, organisations representing the elderly have expressed concern that those who prefer cash, out of reluctance to use new technology or simply because they find it easier to keep track of their spending, will be disadvantaged (Henley, 2016). Similarly, educators in Sweden worry that young people will be tempted to spend money they do not have (Henley, 2016).
It is argued by some economists that a cashless society could benefit the poor. Singletary (2012) writes the poor in developing countries are financially marginalised because they don’t have easy and affordable access to basic banking services, and perhaps digital services would enable the poor access to banking services. For many people where cash is their only option, it also means their assets are stuck in the material world (Singletary, 2012). In addition, the more people rely on cash, the more crushing the costs and risks of cash become, for instance, a fire or natural disaster can obliterate a person’s savings (Singletary, 2012).
Cash, Crime and terrorism
Calls for the eradication of cash have been bolstered by evidence that high-value notes play a major role in crime, terrorism and tax evasion (Mason, 2016). Peter Sands, the former chief executive of Standard Chartered, claims criminals move more than $2tn (£1.4tn) around the world each year (Farrell, 2016). There is little debate among law-enforcement agencies that cash, especially large notes like the €500 note, US $100 bill and the £50 note, facilitates crime including racketeering, extortion, money laundering, drug and human trafficking, corruption and terrorism (Rogoff, 2016). Cash delivers absolute anonymity, portability, liquidity and near-universal acceptance (Rogoff, 2016).
Sands also claims that tax evasion robs countries of up to 70% of their tax income (Farrell, 2016). Cash is deeply implicated in tax evasion. In the US, tax evasion cost the federal government $500 billion a year in revenue and, according to the Internal Revenue Service, a lot of the action is concentrated in small cash-intensive businesses (Rogoff, 2016). By contrast, businesses that take payments mostly by check, bank card or electronic transfer know that it is easier for tax authorities to catch wrongdoing (Rogoff, 2016). Cash will have a presence in our society for a number of years to come, and although the United Kingdom is not going the way of Sweden in terms of a cashless society as of yet, it will be a serious prospect in the future.
Aschheim, J. and Tavlas, G.S. (2013) Money. In: Cate, T. (ed) An encyclopedia of Keynesian economics. Cheltenham, UK: Edward Elgar Publishing.
BBC (2012) A brief history of money [video]. Available at: http://www.bbc.co.uk/news/business-18827269 [Accessed: 8 November 2016].
British Museum (no date) Money: the beginnings of money [online]. Available at: http://www.britishmuseum.org/explore/themes/money/the_beginnings_of_money.aspx [Accessed: 8 November 2016].
Farrell, S. (2016) Scrap high-denomination banknotes, urges ex-bank boss. The Guardian [online], 8 February 2016. Available at: https://www.theguardian.com/business/2016/feb/08/high-denomination-bank-notes-should-be-scrapped [Accessed: 21 November 2016].
Haaramo, E. (2016) Could Sweden become the first cashless society? [online]. Available at: http://www.computerweekly.com/news/4500271520/Could-Sweden-become-the-first-cashless-society [Accessed: 18 November 2016].
Henley, J. (2016) Sweden leads the race to the cashless society. The Guardian [online], 4 June 2016. Available at: https://www.theguardian.com/business/2016/jun/04/sweden-cashless-society-cards-phone-apps-leading-europe [Accessed: 24 November 2016].
Hinsliff, G. (2016) A cashless future? Sounds like a dream but don’t be fooled. The Guardian [online], 21 October 2016 [online]. Available at: https://www.theguardian.com/commentisfree/2016/oct/21/cashless-future-apple-tim-cook-smartphone-apps [Accessed: 9 November 2016].
Kaboub, F. (2013). Money. In: Clark Northrup, C. (ed) (2013) Encyclopedia of world trade: from ancient times to the present. London, United Kingdom: Routledge.
Kruger, M. and Seitz, F. (2014) Costs and benefits of cash and cashless payment instruments: overview and initial estimates [pdf]. Available at: https://www.bundesbank.de/Redaktion/EN/Downloads/Publications/Studies/costs_and_benefits_of_cash_2014.pdf?__blob=publicationFile [Accessed: 16 November 2016].
Law, J. (2011) Cashless society. In: Business: The ultimate resource. London, UK: A&C Black.
Manur, A. (2016) We are trying to become a cashless society – but is that a great idea? Available at: http://factordaily.com/digital-payment-cashless-society-good-or-bad/ [Accessed: 17 November 2016].
Mason, P. (2016) Crime, terrorism and tax evasion: why banks are waging war on cash. The Guardian [online], 15 February 2016. Available at: https://www.theguardian.com/commentisfree/2016/feb/15/crime-terrorism-and-tax-evasion-why-banks-are-waging-war-on-cash [Accessed: 21 November 2016].
Mulhere, K. (2016) Cash is still king. Money Magazine, 4 November 2016 [online]. Available at: http://time.com/money/4558351/cash-popular-payment-form/ [Accessed: 9 November 2016].
Northrup, C. (2013) Coinage. In: Encyclopedia of world trade: from ancient times to the present. London, United Kingdom: Routledge.
Penguin Dictionary of Economics (2003) Penguin, Credo [online].
Rogoff, K. (2016) The sinister side of cash. The Wall Street Journal [online], 25 August 2016. Available at: http://www.wsj.com/articles/the-sinister-side-of-cash-1472137692 [Accessed: 24 November 2016].
Rothbard, M. (2008) Money: its importance, origins, and operations [online]. Available at: https://mises.org/library/money-its-importance-origins-and-operations [Accessed: 28 November 2016].
Shim, J. and Siegel, J. (1995) Neoclassical economics. In: Dictionary of economics, Wiley. Los Alamitos, CA: Shim and Siegel.
Singletary, M. (2012) Is there value in the end of cash? The Washington Post, 13 October 2016, EBSCOhost: Business Source Corporate Plus [online].
Swedish Institute (2016) Sweden – the first cashless society? [online]. Available at: https://sweden.se/business/cashless-society/ [Accessed: 17 November 2016].
WeUse Coins (2014) What is Bitcoin? (v2). YouTube [video]. Available at: https://youtu.be/Gc2en3nHxA4 [Accessed: 21 November 2016].
Williams, A. (2016) The war on cash is raging – should we welcome or fear the death of hard money? City A.M. [online], 7 June 2016. Available at: http://www.cityam.com/242726/the-war-on-cash-is-raging-should-we-welcome-of-fear-the-death-of-hard-money- [Accessed: 21 November 2016].