The implications of a cashless society
by Gerald Fenech
Those born in the 20th or 21st century may find the notion of utilising cash as a means of payment very natural in everyday life. However, we seldomly think about how the world would be if it were to go completely cashless. Would our economies still be able to function? Will many goods and services that we consume become much more difficult to obtain? To help us navigate this, we spoke to JP Fabri, an economist and Director of Economic & Digital Economy Advisory ARQ Group, a Malta-based professional services firm.
Fabri said that “We are seeing an evolution in the payments ecosystem. Today, credit cards are by no means the only option to pay, as digital wallets are growing in popularity. Contactless payments are becoming more popular and we have seen that these have been launched and are gaining traction in Malta too. Concurrently, biometric solutions using fingerprints or eye scanning are increasingly more widespread. All new payment solutions share the same goal – helping customers make faster, safer and more convenient transactions. Some countries are almost there already.”
A consumer payment choice study was conducted by the Federal Reserve Banks of San Francisco, Richmond and Boston in 2012 and it concluded that amongst all methods of payment, cash was the most prevalent form amongst all age groups, with 40% usage, followed by debit cards at 25% and credit cards at 17%. Moreover, cash use is especially highlighted when small-value transactions are involved which would not come as much of a surprise for many.
On the other side of the coin however, many would argue that generations before us did not use cash as it was not yet in existence and still managed to survive and prosper. In fact, it was only in 1862 that the United States government issued its first banknotes. Prior to that, many people were part of the cumbersome barter system, through the trade of physical goods, which was later followed by coins or tokens which were government-minted or specific currencies issued by private banks. With the recent proliferation of crypto-currencies and the wide array of applications of blockchain technology within the finance industry, enabling the mainstreaming of peer-to-peer transactions taking place, could we potentially see a shift from a physical cash world onto more of a digital and hence cashless one?
Fabri said that Sweden are amongst the first nations in the world to heavily implement the cashless notion, whereby they have accustomed their citizens to using electronic means of payment. Fabri added that, “through an app named Swish, people are able to not only transact for everyday items, but also enable users to transfer money in situations which we do not normally associate with electronic payments, such as donation to churches or to homeless people in the streets.” The Swedish government has also set its sights on creating its own cryptocurrency, the e-Krona, which will enable the use of blockchain technology for a government issued currency.
Cash has been touted by its proponents as one of the only means of ensuring privacy and anonymity in terms of payments. In fact, the preferred method of payment for anyone wishing to conduct illicit or illegal practices, has in the majority of cases been cash. Fabri argued that governments and their agencies alike, on the other hand, have a much larger affinity for electronic transactions, for the simple reason that it is much easier to track tax payers and the movement of money. In fact, he added that the European Commission is actively pursuing this stance of reducing cash transactions.
The recent proliferation of cryptocurrencies has dominated public and policy discourse over the past couple of months. One of the main arguments in favour of cryptocurrencies is that in certain types of coins, one can achieve the anonymity feature whilst still having the accountability mechanisms that governments and agencies would like, through the blockchain technology underlying it.
Bitcoin is by far the most popular cryptocurrency to date, with the largest market cap out of all the cryptocurrencies and has the capability of providing anonymous transactions on a peer-to-peer basis, in a decentralised network which is not owned by any government. However, the immutability function of the blockchain technology allows transactions to never be erased and thus a viable audit trail is created. Fabri added that blockchain and the interplay of cryptocurrencies can truly revolutionise payments and financial systems as we know them, bringing the much-needed audit trail thanks to the immutability of the blockchain itself. He added that more harmonised regulation is needed for the blockchain and cryptocurrencies to become mainstream technologies and countries like Malta are paving the way. However, he stressed, regulations are only one facet of the issue and need to be supported by a much broader ecosystem.
With Sweden already on the forefront of eliminating cash, could the world eventually follow-suit? Albeit that cash will most probably be part of our lives for many years to come, it will not be the worst idea to become more aware of other electronic means of payment out there and simply experiment to see what works best for that individual.