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The Cashless Society

I took a trip to one of London’s major retail outlets last Tuesday, there wasn’t anything particularly unusual about my trip but an unplanned excursion to the men’s accessory section sparked a glaring realisation.

I had intended the purpose of my trip to Oxford Street to be the purchase of a new shirt; a poorly fastened coffee cup lid had led to the unexpected retirement of a previous favourite. However, I soon found myself wandering away from the bountiful shirt section and towards the glittering lure of the nearby collection of tie-clips, cufflinks, watches and the like. It was here where I came across a relic from a by-gone era – a money-clip.

It was this discovery that led to the realisation that inspired this blog post – not only is cash becoming somewhat redundant, it is harming our economy. Of course, finding this unashamedly audacious accessory didn’t immediately spark this realisation, but it did spark a train of thought, one that I will retrace in this post.

My first reaction was to attempt to remember the last time I used cash, or at least enough to warrant a sterling silver money clip. I come from quite a small town in the West Midlands where the necessity for cash has been, until recently, absolute. That experience is in direct contrast to my current life in London, a bustling hub of early adopters, where thanks to; the work of a few disruptive Start-Ups, Apple, Google and the payment Networks (Visa, Mastercard, Amex), I can comfortably go about my day to day life with just an untouched, emergency ‘tenner’ in my wallet. Debit/Credit cards, Oyster Cards, Contactless Payments, Peer to Peer payments, Crypto Currencies and Digital wallets have all contributed to the ‘cash-free’ life I live in London. I did however sometimes find myself waiting, very British-ly, in a queue for a cash machine when I knew a taxi journey would be unavoidable, an activity that , thanks to the services of ‘Uber’ and ‘Hailo’, is becoming far less frequent.

But what is the cost of finding, queuing for and using these cash machines? Recent findings suggest that Britons waste £214m every year on withdrawal fees, which most will agree, is a sizable amount. But how much time is wasted on finding and using these machines? Well, reliable figures propose that the average American spends 28 minutes each month (5.6 hours a year) going to the bank or ATM to fetch cash. Given these numbers, it is clear that ‘cash’ is not only harming our economy from a spending perspective, but also it is harming our productivity – literally sapping days from our lives.

However, as I thought more about this, I realised that the cost is not only personal, I realised that cash may also be having a negative effect at a macro level and, believe it or not, the Government could benefit massively from a cashless economy, in two main ways:

Monetary Policy: Here in the UK, the Government defines a set of targets for the economy, which the Bank of England will attempt to meet through policies and decisions, enforced and taken by the Central Bank through the Monetary Policy Committee (MPC), a similar approach is taken across the globe. Across Europe, Central Banks have recently adopted a policy of negative interest rates - this is designed to be a stimulus for the economy, encouraging Banks/individuals to spend/invest in local companies/opportunities rather than keep their funds in Central Banks that will effectively eat their investment. This policy is not being as effective as it should be and this is due to cash. In a world where cash is still present, negative interest rates are impossible to enforce, savers simply withdraw their savings, making monetary policy ineffective.

Shadow Economy: It is a well-known fact that Greece is at risk of defaulting on its international debt, one reason for this is that its citizens are avoiding tax, resulting in declining revenues for the Government. In order to combat this, the Greek government is incentivising local citizens to ‘snitch’ on their ‘tax avoiding’ friends and neighbours, but there may be a less contentious solution. Cash makes it easy to avoid tax, it is commonly referred to as ‘cash in hand’ but economists prefer to call it the ‘unregulated shadow economy’. In this ‘shadow economy’, personal cash income is not declared and therefore tax can be avoided, unsurprisingly this means that cash is the preferred payment medium of criminals. By abolishing cash, Governments would gain much not only greater transparency into the economy, including criminal behaviour; it would also increase its tax revenues, boosting the Government coffers and perhaps appeasing its international creditors. 

It is quite clear from an economic standpoint that cash is potentially a net negative force, however there are a number of hurdles to jump before our society can say ‘goodbye’ to the ‘Queen’s nose’. These include infrastructure and connectivity issues, the challenge of phasing out physical currency, the 12% of the population that are unbanked and how tourists/ immigrants would exchange currencies without a bank account.

Additionally there are undoubtedly advantages to using cash, although its lack of transparency may provide the perfect shadows for criminals to lurk in, it also provides a degree of privacy that may evaporate in a cashless society. Some may argue that the emergence of ‘Crypto-Currencies’ and the underlying Blockchain ledger technology would provide this privacy though these are not widely adopted and have their own associated risks.

Another point to consider is cash has one benefit which isn’t immediately obvious – many parents passionately agree that its physical nature is unequivocally better for (young) children learning about, and learning the value of, money. It’s not to say that children couldn’t learn in a ‘cashless society, but it may well be more difficult for children to understand the finite nature of a bank balance if all they see is their parents waving a magic plastic rectangle.

Finally, safeguarding security is a huge challenge in a cashless society.  Not only will organisations need to ensure that their security architecture is robust enough to deal with threats to their ‘Point of Sale’ and ‘Online’ transactional systems, they will also need to ensure that the data being created through these transactions is secure and compliant with regulatory standards. Users may choose to adopt ‘Bio-Metric’ ID verification technology to ensure their transactions are secure, though this itself could pose massive problems if the security of one’s ‘Bio-Metrics’ were compromised. However, the topic of security is extremely wide and warrants its own blog post so perhaps it is a point of discussion for another day.

To conclude, the future of a cashless society may be uncertain, though it is undoubtable that the benefits are hard to ignore. Furthermore, I re-visited the store this Monday and the money-clip was yet to be sold, which is perhaps symbolic of the route we will take.

 

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