Is integrating technology into finance detrimental?

22 July, 2022Oliver Karlsson

Oliver Karlsson was highly commended, in the 14-15 age group in this year’s Young Financial Journalist competition. His article explores the benefits and downsides of digitalising money.

The evolution of money

Throughout human history, we have exchanged goods with varying methods. First, people directly bartered goods. This was impractical as there was no general standard for an object’s value, so we moved to using precious objects as intermediary devices for exchange, but that led to deflation and unemployment.

So we then moved on to having notes and coins worth far less than their face value which meant that their relative value could adapt to suit the economic conditions of the time. Now, people are advocating for another reform in our monetary systems: digital currency.

In recent decades, technology has become increasingly integrated into Britain’s monetary system, due to globalisation and the advancement of computer technologies. In 2017, debit cards overtook cash as the most popular form of payment. In addition, online-only banks, such as Starling Bank and Monzo, are now used by more than a quarter of the population.

Who does the digitalisation of money benefit?

The switch to more modern approaches to money is being particularly embraced by the younger generation, with 51% of 25–34-year-olds having a positive attitude to a cashless society.

This could be because they have grown up with digital technology and are more inclined to want to use it for a wide range of applications, including for money-management.

Many small businesses are also increasingly accepting cards. The COVID-19 pandemic had a great effect on shopping, and using cash was largely discouraged due to it being less hygienic than digital transactions. Another factor in the move away from cash is the shift from physical shopping to online shopping.

Advocates of a more digital monetary system claim that it will bring with it many benefits. A commonly cited benefit is that digital transfers are more transparent than using physical cash, which could help to reduce corruption, tax evasion and criminal transactions.

Another is the convenience that will come with not having to carry physical money wherever one goes, and the simplicity of doing away with cash registers. Some supporters also say that it will help people better manage their money, by simplifying the process and making personal finance less complex.

The downside of a cashless society

Critics of doing away with cash, however, think that, without a tangible representation of the money, people will be more tempted to overspend, because they cannot see the money that they are wasting. They also argue that digital transactions are prone to hacking and are less secure and reliable than physical transactions.

As for online banking, it could really help many young people learn how to manage money without the complexities of physical banks. Also, it makes it much easier to access banking services when one cannot go to a physical bank.

However, like digital currency, digital banking is prone to hacking and that fact may discourage some from wanting to use it. Also, even if people can check their account balance or transfer money remotely, they still have to go to a 3rd party ATM, which commonly have fees, to withdraw or deposit cash.

Another recent development is that of cryptocurrencies, which use decentralised “blockchain” technology to act as a highly secure means of payment. Bitcoin, the most popular cryptocurrency, has already been given official status as a currency in El Salvador.

Supporters tout that it is a very cheap method of paying internationally and does not incur banking fees. Cryptocurrencies also use encryption to bypass many of the security issues seen with other digital currencies.

However, so far, cryptocurrencies have proved to be highly volatile, making them impractical as a currency and only useful as a form of investment. In addition, many world-leading economists have said that cryptocurrency is only a speculative bubble.

Back to the topic of cashless societies: perhaps cash’s sentimental value should be an important factor to consider. In the future, will children not be able to excitedly open an envelope on their birthday to find that grandma has given them a crisp twenty-pound note?  

The physical presence of money makes it seem more valuable than just a number on a screen, and that could make people want to be more responsible with their money; handing over ten fifty-pound notes feels more momentous than clicking “Confirm & Pay” on a smartphone screen.

Despite these criticisms, most people in the UK and many other countries have begun to embrace modern, digital means of payment and banking. Would you want to live in a world where money is an intangible, dimensionless entity?

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