IS A CASH-LESS SOCIETY VIABLE?
By Ryan Ratnam
Many can understand the struggle of taking your wallet or purse out when paying for something, only to be met with a cascade of coins spilling to the floor, forced to pathetically scramble about to make sure your prized 2p is retrieved. But, imagine a society where money doesn’t exist physically, transactions taking place with a simple click or a swipe. This is a Cash-Less Society, and it is fast approaching. But what does this mean for us? Certainly a lot more than just dropping a few coins.
Everyone remembers the gruelling 2008/2009 recession period; some countries still haven’t recovered. But what would have happened if we were living in a Cash-Less Society? That’s the question many economists ask when discussing our future. The answer – a way out. Governments typically lower interest rates during recessions to inspire spending and investment. E.g. UK interest rates fell by 5% in less than 6 months during the recession. But who’s going to spend during a massive financial crash? Consumer confidence is shattered, and many withdraw all money, hoarding it in physical cash. As interest rates approach zero, the Zero Lower Bound Problem comes into play. Negative interest rates mean that consumer funds are deducted, rather than added to. The problem is that no consumer is altruistic enough to twiddle their thumbs whilst their life savings gradually fade away. All consumers withdraw their money and banks are left with nothing. Yet, in a Cash-Less Society, the banks have a trump card; there is no physical money to withdraw. Whilst likely unpopular, negative interest rates would inspire spending, consumers unwilling to lose their savings, yet also unable to hoard them. So, they do the only thing they can do, they spend. Consumption increases and banks would have a greater ability to lend. Therefore, a Cash-Less Society could be a life-line for an economy gripped by recession.
A Cash-Less Society plays on consumer confidence, yet it could augment careless spending. What would be easier? – Paying £50 in cash, or paying through a quick swipe? I would expect a unanimous decision on the latter. Counting out physical notes and coins in your hand gives them an element of tangibility that restrains consumers from overspending. Yet, in a Cash-Less Society, where a tap or a swipe could mean spending hundreds of pounds, in the moment, what’s to stop you? Overspending becomes much easier. A Cash-Less Society could put consumers’ savings at risk from themselves.
Like many, it seems, if you’re planning to build your career on the promised riches of Blockchain, a Cash-Less Society could mean exciting things for you with the new currencies it inspires. Since money would only be available through the Internet, it would allow exploration into alternative crypto-currencies, like Bitcoin, but more interestingly, hyper-local currencies. Hyper-local currencies are only accepted in specific regions. E.g. ‘Berkshires’ and ‘TEM’ only operate in Massachusetts, America and Volos, Greece respectively. The former aims to build stronger relationships between various businesses and with consumers. The latter is a bartering system of sorts, hoping to stimulate the local economy and escape the financial crisis which has engulfed Greece. The use of these new currencies could be tailored, almost establishing a law over money. Say you’re campaigning against sweatshops. You could put in a rule that devalues funds if used on goods unethically produced, lowering the incentive for people to shop there. Applied to the whole currency, it presents a form of boycotting that could make a tangible difference. Yet, you must consider the potential leviathan of numerous different currencies that could surface. Many already find it difficult handling international exchange rates, how do you regulate different currencies in one economy? A Cash-Less Society threatens to overshadow the national currency and subsequently undermine the national economy.
In recovering from the adrenaline rush from all these flashy new crypto-currencies, we consider the inequality new infrastructure could cause. To make basic transactions, you would need various network connected devices, such as smartphones, computers etc. Whilst this may be sustainable individually, for a struggling family, this may be impossible. Unable to handle their own money effectively, this would only widen the inequality seen in society. This raises too many questions. How would the homeless use money? How would struggling businesses cope with this infrastructure change? How do small children use money? Whilst being a lesser problem for MEDCs like the UK, it would spell catastrophe for LEDCs.
In a Cash-Less Society, eliminating the possession of physical money would decrease the incentive for muggings and burglaries. Physical cash is very hard to trace and therefore plays a large role in drug payments, terrorism, tax evasion etc. However, digital transactions leave a ‘Paper Trail’; a traceable route of breadcrumbs leading straight to the perpetrator, increasing the likelihood of salvaging stolen funds and deterring crime. Yet, to think that this would solve all financial crime is a naïve overestimation of the nonchalance of a criminal. As consumers adapt to a Cash-Less Society, so would criminals and crime would just go online. We would see more identity thefts, fraudulent transactions, data breaches etc. The effect has already been seen; as of June 2017, fraud became the most common crime in England and Wales. Even in a Cash-Less Society, crime would evolve like it always has.
The winner? Beyond its spectacle, a Cash-Less Society could greatly increase efficiency and is a game changer in the economic cycle regarding recessions, something a Cash society is unable to do. But just like flying cars were, this society is the future, just more tangible. Physical cash only makes up for 34% of transactions in the UK and in Sweden, by 2020, these transactions are forecast to be 0.5%. Despite being better in the long term, we must look at a Cash-Less Society’s disadvantages so to correctly implement it, allowing integration and security rather than inequality and vulnerability. But whether you like it or not, a Cash-Less Society is coming and in the words of television’s Cash-Less Society, Star Trek; ‘resistance is futile’.