Is Becoming a Cashless Society a Good Idea? – Making of a Millionaire
Will it make our lives easier … or a bit harder?
Over the last few years, banks, globally speaking, have closed thousands of branches and free ATMs in developed countries. This has all been done because we, as consumers, have ‘demanded’ it.
We did this by switching to digital and online services and using less cash. Of course, even a cursory examination behind the curtain reveals what most of us already know — we’ve moved to digital and online services and are using less cash because the banks have been closing branches and free ATMs.
This process is called ‘nudging’ in the world of behavioral economics and we see it all the time. The basic premise is for a powerful or, even better, monopolistic institution to encourage its users to proactively choose a different thing by making it difficult to choose the alternative.
Then, the organisation can point to this behavior as a justification for doing the thing it did to create the behavior in the first place. It can say, without much fear of reprisal, “We’re simply doing what YOU told us to do!”
In other words, this is the financial sector’s equivalent of letting the wife think it was the husband’s idea to go clothes shopping at the weekend.
But however we got here, the reality is that we are using less cash and doing more of our day to day transactions electronically than ever before. And if that’s the case and a day will come when cash is no longer king, will we find ourselves in a crime-free Utopian future? Or in a Totalitarian state with full surveillance of our spending habits?
The erosion of cash is already underway
Think mobile apps that run on NFC (Near Field Communication) such as Apple Pay, Samsung Pay, WeChat Pay, Alipay and a myriad of others around the world. We use our Visa and Mastercards for micro-payments instantly without thinking about it — gone are the days of $5 or $10 minimums.
Even transactions that we traditionally associate with cash are being replaced with entirely electronic systems, such as car parking and soda can vending machines. Does anyone miss repeatedly stuffing in a dollar bill, only to have it rejected time after time for no apparent reason?
It is now entirely possible to live your life in most industrialized countries without ever having to obtain or spend physical cash and it can be done without any real difficulty.
Countries like China and South Korea claim 90% of transactions are now done electronically, although in the former the figures in rural areas are lower. Sweden, which has pledged to become a cashless society in just three years, boasts that only 1% of the country’s economy is made up of physical cash and coins. These countries, by virtue of being further along the cashless curve, give us a glimpse of what’s to come.
And it’s an interesting picture.
The advantages of a cashless society
No-one will deny it’s far more convenient to wave what is effectively a magic wand when a payment is needed for something. It’s easier, and cheaper, for businesses and allows more throughput. Not only that, but it allows for accurate accounting by removing the element of human error. Sending money to someone far away is also far easier and safer than sending cash by post and even comes with guarantees in most cases.
It also makes certain crimes much harder, especially tax evasion and money laundering since the source of every penny will be known to the centralized systems that manage our finances. No more will your builder come round and give you a price ‘for cash’ when there’s no cash to use.
Sweden has also seen a real and dramatic reduction in physical crimes concerning money. If no-one carries it, then there’s less chance of it being taken. Even bank robberies have dropped from 110 nationally in 2008 to just two in 2018 according to a report by the New York Post in 2019. There’s simply no point if you can’t get rid of it.
Cashless transactions produce enormous amounts of data. Governments can make fiscal policies based on spending patterns, companies can make marketing more targeted and efficient. In the ideal world, we’d like to think these are ‘good’ things, but the reality is that this factor appears in both the ‘advantage’ and ‘disadvantage’ column as we shall see.
There are other advantages of course, but the reality is that for most people it will always come down to the first point on this list — sheer convenience.
And people are prepared to give up quite a lot for that.
Where a cashless society falls short
The ease of carrying out that contactless payment for your morning coffee comes with a hidden cost, of course.
Your bank manager knows what you’re spending your money on and may decide against your mortgage application if he or she thinks your incidental spending is too high.
Your government knows where you are and at what time, and your patterns, financial and geographical, may provide certain agencies with useful insights for both negative as well as positive reasons.
Your card company and retailer know what your interests are. Sure, it might help with targeted marketing, but there’s still the fundamental question of how much we want to share with total strangers and how they use that information.
Cash doesn’t crash, and although they are pretty robust by most standards, banking systems do. This could be due to a fault or the actions of a hacker and if it’s the latter, this could be devastating in a centralized system that an entire economy depends on. If there’s no cash, what do you do when the system is offline?
Finally, creating a cashless society can only really work if you work to solve the problem of the unbanked. Fundamentally, banks are there to make a profit and the fact is that there are certain members of society where this profit won’t be realized. If you’re one of them, you won’t get a bank account. If you don’t get a bank account, you can’t use the cashless systems. If you can’t use the cashless systems and there’s no cash, what are you going to do?
Even worse if you’re one of the ‘lucky’ banked, and there is no alternative to the centralized monopolistic system in the form of cash, what will you do if this system decides to impose new charges to make up their profits?
Is there a possible happy medium for the future?
It’s possible, but it won’t be easy. Governments and banks will want total control for tax, crime and surveillance reasons, people will want the opposite but with convenience. Something, or someone, has to give somewhere.
New technologies change things all the time and the last twenty years have seen more advances that the entire previous century, financially speaking.
It’s possible, for example, that cryptocurrencies may well shape what happens next to some degree as it solves many of these problems from the consumer point of view (digital convenience but still with relative privacy PLUS the ability to continue to operate globally at all times), although it creates extra ones from where the central governments and banks are sitting (a new form of digital cash that yields none of the tracking benefits.)
It’s likely that some form of digital currency adoption is now inevitable in the next decade or so since it’s a natural next step in an increasingly digital world and cashless society. However, we don’t yet know if it’ll be sovereign (for example, the ‘cryptodollar’), corporate (such as ‘Libra’) or truly decentralized (such as Bitcoin). We’ll have to wait and see.
Unless, of course, we find some ingenious way to wipe ourselves out and end up arguing over bits of gold in the meantime.
What’s next?
Whichever way we go from here, we can only assume that technology will play a big factor. Whether we buy our morning coffee via a tap of our phone, implanted chip or old fashioned cash in ten years remains to be seen. If it’s the latter, it’ll be at the will of the people, not the government’s.
Whichever way it goes, the changes we’re seeing all around the world at all levels are going to be fascinating. It’s an exciting time to be alive!
But where does that leave us as individuals?
There’s only so much we can directly control or influence, but let’s not forget that however, we spend our money in the future, we have to make sure we have it to start with! As such, it should always remain our responsibility to plan for the future, revisit that plan regularly and diversify our investments, especially in times of great change.
And whatever you do, don’t leave it in cash under the mattress.
One day you might not even be able to give it away!
Published at Sun, 16 Feb 2020 19:46:01 +0000
