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Advantages & Disadvantages Of A Cashless Society |
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FORECASTS & TRENDS E-LETTER Advantages & Disadvantages Of A Cashless Society IN THIS ISSUE: 1. Cashless Society May Be In Our Future 2. What Is A Cashless Society? 3. The Benefits of a Cashless Society 4. Disadvantages of a Cash-Free World 5. What Does a Cashless Society Look Like? 6. The Bottom Line – We Don’t Want It Overview – Cashless Society May Be In Our Future A cashless society might sound like something out of science fiction, but it's on its way. Many present-day financial practices and transactions already happen without cash, and many financial institutions, service companies and even governments are proponents of the shift. Many countries are moving towards a cashless society in which all financial transactions are electronic. In addition to simply eliminating the costs and hassles of managing currency, going cashless may also reduce certain types of crime. The downsides of going cashless include less privacy, greater exposure to hacking, technological dependency, magnifying economic inequality and more. Credit and debit cards, electronic payment apps, mobile payment services and virtual currencies in use today could pave the way to a full cashless society. What Is A Cashless Society? A cashless society is one where cash – paper and coin currency – isn't used for financial transactions. Instead, all transactions are electronic, using debit or credit cards or payment services like PayPal, Zelle, Venmo and Apple Pay. Many countries are moving in this direction, but it's difficult to tell which ones will eliminate cash altogether. The benefits and disadvantages below can give you an idea of the myriad of effects going cashless could have on money and banking as we know it. In addition to logistical challenges, several social issues need to be addressed before a society can give up on cash entirely. Snap-Shot Of The Benefits & Disadvantages Benefits
Disadvantages
The Benefits of a Cashless Society Those with the technological ability to take advantage of a cashless society will likely find it's more convenient. As long as you have your card or phone, you have instantaneous access to all your cash holdings. Convenience isn't the only benefit. Here are some other benefits. Lower Crime Rates. Carrying cash makes you an easy target for criminals. Once the money is taken from your wallet and put into a criminal's wallet, it's difficult to track that cash or prove it's yours. One study by American and German researchers found that crime in Missouri dropped by 9.8% as the state replaced cash welfare benefits with Electronic Benefit Transfer (EBT) cards. Automatic Paper Trails. Similarly, financial crime should also fall sharply in a cashless society. Illegal transactions, such as illegal gambling or drug operations, typically use cash so that there isn't a record of the transaction and the money is easier to launder. Money laundering becomes much harder if the source of funds is always clearly identifiable. It is harder to hide income and evade taxes when there's a record of every payment you receive. Cash Management Costs Money. Going cashless isn't just convenient. It costs money to print bills and mint coins. Businesses need to store the money, get more when they run out, deposit cash when they have too much on hand, and in some cases, hire companies to transport cash safely. Banks hire large security teams to protect branches against physical bank robberies. Spending time and resources moving money around and protecting large sums of cash could become a thing of the past in a cashless future. International Payments Become Much Easier. When you travel, you may need to exchange your dollars for local currency. However, if you're traveling in a country that accepts cashless transactions, you don't need to worry about how much of the local currency you'll need to withdraw. Instead, your mobile device handles everything for you. Disadvantages of a Cash-Free World Depending on your perspective, going cashless might be more problematic than beneficial. Here are some of the major downsides associated with a cashless financial system. Digital Transactions Sacrifice Privacy. Electronic payments aren't as private as cash payments. You might trust the organizations that handle your data, and you might have nothing to hide. However, the more information you have floating around online, the more likely it is to wind-up in malicious hands.
Technology Problems Could Impact Your Access to Funds. Glitches, outages and innocent mistakes can also cause problems, including possibly leaving you unable to buy things when you need to. Likewise, merchants have no way to accept payments when systems malfunction. Even something as simple as a dead phone battery could leave you "penniless," in a sense. Economic Inequality Could Become Exacerbated. Unless special outreach efforts are made, the poor and unbanked will likely have an even harder time in a cashless society. If smartphone purchases become the standard way to transact, for example, those who can't afford smartphones will be left behind. The UK is experimenting with contactless ways to donate to charities and homeless individuals, but these efforts may not be developed enough yet to substitute cash donations. Payment Providers Could Charge Fees. If society is forced to choose from just a few payment methods, or if one app becomes the standard payment app, the companies who develop these services might not offer them for free. Payment processors may cash in on the high volumes by imposing fees, which could eliminate the savings that should come from less cash handling. The Temptation To Overspend May Increase. When you spend with cash, you recognize the financial impact by physically taking the cash out of your pocket and giving it to someone else. With electronic payments, on the other hand, it's easy to swipe, tap or click without noticing how much you spend. Consumers may have to rethink the ways they manage their spending. Negative Interest Rates Could Be Passed On To Customers. When all money is electronic, negative interest rates could have a more direct effect on consumers. Countries like Denmark, Japan and Switzerland have already experimented with negative interest rates. What Does a Cashless Society Look Like? Without cash, payments happen electronically. Instead of using paper and coins to exchange value, you authorize a transfer of funds from a bank account to another person or business. The logistics are still developing, but there are some hints as to how a cashless society might evolve.
Two Examples of Cashless Societies Several nations are already making moves to eliminate cash, with the push coming from both consumers and government bodies. Sweden and India are two notable examples with two different outcomes. Sweden It's not uncommon to see signs that say, "No Cash Accepted" in Swedish shops. According to the European Payments Council, cash transactions accounted for just 1% of Sweden's GDP in 2019, and cash withdrawals have been steadily declining by about 10% per year. Consumers are mostly happy with this situation, but those who struggle to keep up with technological developments continue to rely on cash. Sweden is gearing up to become the first completely cashless nation in the world, with an economy 100% digital by 2023. India The Indian government banned 500 and 1,000 rupee notes in November 2016 in an effort to catch criminals and those working in the underground economy. The implementation was controversial, in part because these notes reportedly made up 86% of currency in circulation. However, criminals weren't punished for hoarding untraceable cash, which had been the intent of the move. The Economic Times cited the Reserve Bank of India as it reported that electronic transactions had increased temporarily, but cash returned to pre-demonetization levels by the end of 2017. While these two examples had varying levels of success, both countries struggled to address how the marginalized would fare in a 100% cashless society. The Bottom Line – We Don’t Want It With the many technological and societal moves towards digital and virtual financial transactions, cash currency is becoming less and less common. However, the shift to a fully cashless society has many potential drawbacks, and only time will tell whether cash holds a special niche.
Gary D. Halbert SPECIAL ARTICLES FEE: Toward A Cashless Society Should We Become A Cashless Society Gary's Between the Lines column:
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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent. |
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Cashless Transactions Are Exposed to Hacking Risks. Hackers are the bank robbers and muggers of the electronic world. In a cashless society, you're more exposed to hackers. If you are targeted and somebody drains your account, you may not have any alternative ways to spend money. Even if you're protected under federal law, it will still be inconvenient to restore your financial standing after a breach.
