The concept of a cashless society is nothing new. Many of the things we used to pay for with cash are now taken care of using automated payments and subscriptions. The widespread use of smartphones makes paying for goods and services via barcodes and QR codes easier than ever before. Also, the rapid development of central bank digital currencies (CBDCs) suggests that governments and central banks are already taking steps to move away from physical currencies. That said, the dangers of a cashless society aren’t spoken about as often as the benefits.
A cashless financial system promises convenience for all, with lighter pockets, faster payments, and more regulation. However, cashlessness comes with several potential drawbacks that could alienate various parts of society. Furthermore, many analysts suggest that the use of CBDCs could reduce privacy and restrict people from accessing their funds.
In this article, we’re going to explore the concept of a cashless society. We’ll dive deep into the history behind the concept and discuss the areas of society that have already moved away from cash. Also, we’ll look at the roles of cryptocurrencies and blockchain in this shifting paradigm and consider the benefits and dangers of a cashless society.
Exploring the Concept of a Cashless Society
Since the COVID-19 pandemic, many countries are moving away from physical currencies in favor of digital alternatives for hygiene reasons. Disinfecting bank notes and placing cash in quarantine comes with obvious shortcomings. That said, the concept of a “cashless society” is nothing new and is not a product of COVID-19. In fact, the banknotes that populated purses and wallets across the world until recently give us an insight into how long this concept has been evolving.
In the fourteenth century, merchants began storing their gold, the currency of the time, in overseas vaults. Rather than shipping huge quantities of the precious metal back and forth throughout Europe, merchants left gold in trusted third-party storage at popular harbors and market towns. The vaults evolved to become what we know today as banks, and the paper notes we use to buy our groceries are derived from gold receipts. Banks offered a safe place for merchants to store their gold. They would issue receipts for each deposit, which removed a lot of the complexities associated with overseas trade.
Eventually, these receipts would be used as currency, making life easier for anyone who needed to transact large quantities of gold quickly. However, in 1933, the United States moved away from the gold standard monetary system. Resultantly, the US dollar was no longer backed by gold, and gold receipts were no longer redeemable.
Moreover, the growing demand for portable, accessible currency resulted in the dismantling of sound money principles, allowing central banks and governments to print money out of thin air and debase currencies. Nonetheless, the fiat monetary system that exists today facilitates global trade on an unprecedented scale.
What Does a Cashless Society Look Like?
Many parts of the world already embrace the absence of physical currencies. Barcodes and QR codes are commonplace among retailers and merchants, with services like Google Pay and Apple Pay enabling all kinds of purchases using mobile phones. Also, while modern banking allows us to automate payments, smartphones make it easier than ever before to transfer cash between friends or make online purchases.
Many of the day-to-day things we once needed cash for no longer require us to carry it for one or more reasons. Direct debits, standing orders, contactless payments, and subscription models unburden our pockets and allow us to keep track of our finances online. However, a cashless society would require a complete shift away from physical currencies.
In a cashless society, everyone would need access to the internet and a device capable of accessing their accounts. If we transitioned to digital payments tomorrow, there would likely be a difficult teething period for those who are unfamiliar with computers or smartphones. Nonetheless, it’s a journey that world leaders have been preparing to embark on for some time.
Benefits of a Cashless Society
The most obvious benefit of a cashless society is convenience. It’s often safer to be without large amounts of cash on your person, especially if you live in a place with high crime rates. Plus, carrying around stacks of cash can be logistically challenging, and counting cash takes up a considerable amount of time for businesses, allowing for human error and accounting mistakes.
Digital payments bypass the issue of counterfeiting. Furthermore, cashless transactions make it easier for companies to detect fraud, as paper money is often difficult to trace once it’s in the wrong hands. Governments also stand to benefit from cashless societies, as they would allow them to observe the financial habits of citizens and enforce economic policies and taxes more efficiently. This is advantageous in regions where cash is prominent, and economies rely on physical currencies.
Moreover, a cashless society could help to increase financial inclusion. Some argue that it could also help to remove friction from cross-border payments and make life easier for anyone traveling abroad.
Dangers of a Cashless Society
Despite the various advantages a cashless society might offer, there are several potential downsides to consider. One of the most significant dangers of a cashless society is the lack of anonymity. Paying with cash provides a level of anonymity that is absent in digital payments. Also, digital payments allow your data to be captured and sold to advertisers.
One of the other dangers of a cashless society is that it could exclude those without access to financial services. In many parts of the world, people are “unbanked” or “underbanked” due to various factors like lack of access, lack of sufficient documentation, and homelessness. Also, the elderly often find it challenging to use digital payment services and online banking. As such, a cashless society could amplify inequality.
A world without physical cash might be problematic if payments systems crash or get hacked. Furthermore, many charities rely on spare change and physical donations. Though several charities also accept digital donations, the lack of spare change floating around pockets presents a challenge to those who collect and raise funds for charities. Additionally, some believe that moving away from cash could increase online scams and attacks.
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How Do We Move Away From Cash?
Now that we know the benefits and dangers of a cashless society, how are we going to get there? Moving towards a cashless society requires policymakers to agree on a framework to get the ball rolling. However, access to technology is one of the biggest factors determining how quickly different parts of the world move away from cash. Only when large sections of the population are comfortable with digital payments will the transition away from cash be frictionless. Nonetheless, this is already the reality today in many parts of the world.
Furthermore, small businesses and merchants need to be incentivized to ditch cash. This transition will be easier for some merchants than others, depending on the region and the stability of local fiat currencies. However, with such widespread access to smartphones globally, it doesn’t take much for merchants to begin accepting digital payments. In Poland, more than 200,000 merchants received free POS devices to incentivize cashless transactions. Additionally, consumers need to be sure that they can trust any payment providers or issuers of digital currencies before they commit to using them.
Central Bank Digital Currencies (CBDCs)
As the name suggests, central bank digital currencies (CBDCs) are digital currencies issued by central banks. They act as digital representations of fiat currencies. While some compare CBDCs to cryptocurrencies, they seldom use public blockchain technology and are far from decentralized. CBDCs allow central banks and governments to digitize fiat currencies and move toward a cashless society.
The digital yuan (e-CNY) is the most-developed of the CBDCs at the time of writing, with testing already underway in several major Chinese cities. Also, there is keen interest in CBDCs among governments and central banks globally, with many analysts expecting China’s digital yuan to have competition in the near future.
Some theorize that CBDCs are a direct response to cryptocurrencies, an attempt by the establishment to replace decentralized internet money with government-issued money. However, despite the hype surrounding CBDCs, they’re not much different from existing digital payment models, except they allow governments and central banks to track money and distribute payments without friction.
Moreover, CBDCs aim to increase efficiency among banks and make it easier to access payment services. On the other hand, some fear that CBDCs could infringe on our privacy and make it easier for governments to restrict access to funds or services. This makes CBDCs one of the potential dangers of a cashless society.
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Where Do Blockchain and Cryptocurrency Come into Play?
Blockchain and cryptocurrencies are positioned to play a crucial role in implementing cashless societies. While skeptics suggest that CBDCs could reduce privacy from our daily transactions, cryptocurrencies provide anonymity and censorship resistance that could help stop prying eyes from seeing our daily spending habits. Government agencies will be able to add or remove CBDCs from user accounts with ease. However, public blockchain payments are immutable, meaning nobody can alter them or adjust your balances.
CBDCs will require users to trust financial institutions and governments. On the other hand, cryptocurrencies and blockchain help to remove the need for trust and provide cryptographic security over user funds. Furthermore, blockchains operate around the clock. They don’t stop for holidays, and they facilitate frictionless payments at any time of the day.
Moreover, if a cashless society becomes a reality globally, cryptocurrencies will provide a viable alternative to government-issued currencies. Crypto assets like Bitcoin provide a hedge against currency devaluation and allow individuals to preserve their wealth without relying on central banks or governments.
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Exploring the Concept of a Cashless Society – Closing Thoughts
The concept of a cashless society is something that has been developing for many centuries. The idea of carrying around less cash dates back to the fourteenth century, when merchants opted to use receipts for gold they stored in vaults rather than shipping huge quantities of the precious metal between countries.
While many parts of the world are taking steps away from cash, China, Sweden, and Finland are among the largest adopters of cashlessness. In China, a significant portion of the population uses smart smartphones on a regular basis to pay for goods and services. Many shops and stores in China feature QR codes for mobile payments, making them popular alternatives to carrying cash. In Sweden, cash payments account for around 20% of all transactions.
Both Sweden and Finland are leaders in the digital payments space, with several apps available facilitating instant currency transfers between users. Also, the rise of apps like Cash App and other crypto-friendly payment services suggests that crypto is likely to play a prominent role in facilitating a cashless society in the United States.
Although cashlessness is taking off in some places faster than others, it’s hard to ignore the global shift toward digital payments that has taken place since the COVID-19 pandemic. However, as long as there are black markets and a desire for anonymous payments, cash will continue to be desirable in some circles.
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