The Advantages and Disadvantages of a Cashless Economy
Floppy disks. Fax machines. Cassette tapes. Phone books. Answering machines. Classified ads. What do these objects have in common? At one point, each played a vital role in our day-to-day lives. Today, they’re nothing more than relics of an ancient world, each having been replaced by a more efficient cloud-based solution. It may seem like science fiction now, but cash could very well be the next everyday-essential to become obsolete.
What is a cashless economy?
In a cashless economy, all financial transactions are executed electronically rather than using banknotes. Several countries around the world have been steadily moving towards a completely cashless society for a number of years. Sweden is leading the charge, where more than 59 percent of consumer transactions are completed through non-cash methods, which includes credit, debit, and mobile banking solutions. Canada is close behind, with 57 percent of transactions made using alternative methods. In 2016 India eliminated its highest denomination bills — removing 90 percent of paper money from circulation. And The People’s Bank of China has publicly acknowledged that physical cash may one day become obsolete.
But what about us? The US is seemingly divided on the subject. Several powerful forces are pushing the cashless agenda, notably the restaurant industry. Starbucks, Sweetgreen, and Shake Shack are just three of the booming businesses testing cash-free locations. Meanwhile, just last week New York City Councilman Ritchie Torres proposed legislation that would prohibit businesses from going cash-free, arguing that cashless businesses gentrify marketplaces. “On the surface, cashlessness seems benign,” he told Grub Street. “But when you reflect on it, the insidious racism that underlies a cashless business model becomes clear.”
It’s evident that there are several benefits, as well as logistical and social issues to ruminate on before the US leaves cash in the past.
The advantages:
Seemingly the biggest advantage of a cashless economy is increased efficiency for both merchants and customers. Gone are the days of heavy pockets stuffed with messy bills and clunky coins. The number of consumers who use their mobile devices to pay using contactless payment solutions like Apple Pay and Google Pay is expected to grow to 450 million people worldwide by 2020. This is one of the reasons why the restaurant industry has been driving the cash-free conversation. Tap-and-go and prepaid digital payment methods are more efficient because cashiers don’t have to waste time counting bills, which speeds up wait times for customers. It also eliminates the need for cash registers, which simultaneously lowers the risk of theft.
Speaking of theft, many believe that other financial crimes would become obsolete in a cashless economy, as it’ll be nearly impossible to hide income or evade taxes if all financial records are digitized. Furthermore, an absence of banknotes would prevent the practice of money laundering that previously allowed criminals to spend stolen money.
“On the surface, cashlessness seems benign, but when you reflect on it, the insidious racism that underlies a cashless business model becomes clear.”
Going cash-free is also great for the economy. In fact, we’d save money by simply not producing money. The average lifespan of a $1 bill in the US is only six years. In a cashless society, governments could potentially save millions in taxpayers’ cash without the expense of minting coins and printing notes. On a smaller scale, it’d encourage consumer spending. Research shows that people often forego small purchases if they don’t have cash on them, a challenge that cashless payment solutions could circumvent.
The disadvantages:
Going cash-free isn’t all roses. Many are concerned that a cashless economy could fuel inequality. A recent FDIC study found that 6.5 percent of households in the United States were unbanked in 2017. Unbanked is a term for adults or families who do not use banks or banking institutions in any capacity. Figures show that low-income individuals are the most likely to be unbanked and that 70 percent of this group use cash for daily purchases. In a cashless world, millions of unbanked Americans would struggle to buy what they need to survive.
Some argue that we’re not technologically prepared for a cashless economy. In the event of a glitch or power outage, consumers might be left unable to purchase basic essentials. Security is another top concern. Hackers have gone far beyond tapping into our laptops and smartphones. Any smart device can be hacked, including televisions, thermostats, garage doors, and refrigerators. If a cybercriminal managed to steal your account information in a cashless economy, you might not have any alternative funds to turn to. This is why many consumers are opting for banks that offer security features like real-time notifications and the ability to instantly lock your account from your mobile device.
