Going Cashless: The Benefits and Drawbacks of a Monetary Digital Syste

Going Cashless: The Benefits and Drawbacks of a Monetary Digital System

While cash would seem to be on the way out and digital transactions are becoming the norm, some countries are better equipped and inclined to embrace this than others.

There are arguments both for and against a cashless society and this article aims to define what a cashless economy involves and highlight some potential benefits and roadblocks likely to be encountered.

WHAT IS A CASHLESS ECONOMY

A cashless economy can be loosely defined as one that doesn’t rely on physical forms of money such as coins, notes or other types of currency. Instead it employs a range of electronic tools such as:

· Credit and debit cards

· Electronic transfers

· Mobile payment services

· Virtual currencies (i.e. Bitcoin, Ethereum, Litecoin)

The speed at which a cashless economy grows will depend on the society’s level of technological development and the rate at which it’s population is willing to make such a change.

BENEFITS OF A CASHLESS ECONOMY

• There are many potential advantages to doing away with cash:

• Convenience – digital transactions mean you have immediate access to your funds via your card or phone. Unlike cash, this access is anywhere and anytime 24/7.

• Less physical crime – carrying cash is unsafe and can make you a target. And if stolen, is completely anonymous and virtually impossible to trace.

• Less financial crime – because digital transactions leave a record, crimes such as money laundering and tax evasion are more difficult to execute and are easier to detect. And if you do lose money from an electronic account, most financial institutions will reimburse you if you notify them immediately.

• Better management - Handling cash attracts a range of different expenses such as costs involving printing, storage, transport and security. A cashless economy doesn’t incur as many of these costs.

• Easier international transactions – no matter where you are in the world, digital transactions make it possible to buy and sell in the local currency. Transferring money overseas is also easier and more convenient.

• More hygienic – because it changes hands so often, money collects germs and viruses and can transfer them from one person to another. This is particularly relevant in light of the current pandemic, since COVID can live on paper money and coins for up to two days.

• Faster transactions – without the need to count out change, digital transactions are faster and less inconvenient for retailers and their customers. They reduce the queues and wait times normally associated with cash transactions.

• Eliminates spare change – we all have drawers or jars full of change and the only way to convert it to usable currency is to bag and bank it which can be more time-consuming than the coins are worth.

• No more counterfeiting – a cashless society would see the end of bank note forgeries which would benefit retailers and consumers alike.

DISADVANTAGES OF A CASHLESS ECONOMY

While there are benefits to a cashless economy, there are also some potential drawbacks. Some of these include:

• Slow uptake – not all retailers are digital ready, meaning there would be a lack of uniformity in adoption of cashless transactions.

• Lack of privacy – because digital transactions leave a paper trail, an individual’s private financial details could be compromised or misused. Cash assures anonymity.

• Reliance on technology – technological problems such as glitches, outages and human error can lead to financial vulnerability. A simple loss of connectivity could leave you without funds.

• Economic inequality – a cashless society requires technology that not everyone can afford. This could be considered discriminatory, as those without access to computers and mobile phones would be left behind.

• Loss of spontaneity – a cashless society would mean the end of one-off transactions such as tipping a busker, purchasing fund-raising merchandise, or children’s birthday gifts or even buying items at a garage or yard sale.

• Potential rise in fees – being required to choose between a handful of payment platforms will reduce competition and is likely to lead to higher fees and charges.

• Spending more – the temptation to overspend is increased when you don’t physically handle the money. You can also be unaware of how much you are spending.

• No cash discounts – it’s always been a common practice to expect a discount when paying cash for high-priced items. This bargaining power would be lost if cashless transactions became the norm.

While there are a number of good reasons why a cashless economy will eventually be a reality, there would also seem to be an argument for making sure cash is available in the meantime.

It could be a generational preference (i.e. those who are elderly or less tech-savvy), but cash is also a necessity for those at risk in society with no financial history who would be barred from purchasing even the essentials of life.

Undoubtedly, as the Baby-Boomer generation dies off and Millennials conduct all of their transactions on-line, cash will become obsolete. But until then, while not quite King, cash is still important to many people.