A Bulletin board full of money from all around the world, in the Travelers cave hotel in Goreme, Cappadocia, Turkey

Can We Be a Cashless Society?

Every day that passes, I seem to use money less. Things I used to pay for with coins and paper money have now been replaced by payment methods such as Tap (micropayments), Interac/Debit, and Chip payments. With Apple Pay and various smartphone payment options hitting the market, we have a society that is very close to being cashless.

With the COVID-19 virus, western countries in the summer of 2020 have started to pull away from the use of cash while promoting the “touchless” alternatives of online credit card payment or the Tap-type of NFC payments. It seems as if we’re poised to finally go cashless.

But, what if we stop using and paying with cash altogether? It’s important to realize that cash has intrinsic benefits that electronic currency can’t touch. If we lose this, some might say that we’ll lose a lot.

If we lost cash, we’d have to accept losing these three important tents of a cash system.

1. Zero Infrastructure Costs – most electronic means of payment require the use of a holding account (from a bank or credit card company), and a merchant account (for the retailer). This need for infrastructure tends to create the worrisome “nickel-and-dime” service charges that whittle away the money we use. Conversely, once cash is created and in the hands of its owner, there are no service fees, storage fees, etc. Generally, when paying in cash, there are no fees for doing so. This something that electronic currency and payments must replicate.

2. Traceless – If you think about it, we’re lucky for this. If cash were created today, there would complete traceability through every possible transaction. There is no doubt that law enforcement hates the fact they can’t catch all the bad guys that may have touched a note (from a drug bust), or that they can’t take a stack of cash and find out all the corrupt officials that touched it. While we may want those things to be possible (to catch criminals), this lack of traceability is protection we all should appreciate and embrace (but precious few do).

3. Transaction Safety – With all forms of electronic payment that inundates us, many have found ways to circumvent controls and steal information (or in some cases money). To be sure, this is all troubling, but it is also the cost of maintaining a huge infrastructure. Companies that are getting rich on the back of transactions are going to need to increasingly work harder to protect from attackers. Compare that to currency, there are no ways an attacker can circumvent controls because money is a physical thing [1]

But cash is expensive. Expensive to make, and costly to police the fakes. The physical currency also helps criminals by staying anonymous. Even worse, many (criminal and innocent alike) hoard the stuff, so it stays out of the system. Then, there are pennies. Pennies cost more to make than they’re worth. Yet, some countries like America still make them. Since they’re not worth enough to be useful, they can be prone to more hoarding, when all that metal could be useful in some other way.

When all this currency is not being used, invested or spent – it surely has a negative effect on economies. When money in a banking institution, the bank will reuse it by investing and lending. But, when it sits in someone’s shoebox or is stockpiled by the nearest drug tsar, this runs counter to a country’s economic engine. Others still may keep cash to avoid paying taxes. If money were abolished, the uptick in tax revenue might be enormous.

Given all these benefits, it’s easy to see why governments would be more than eager to remove cash from the global equation. As with many of these types of things, people aren’t focused on the loss of privacy when a new shiny thing (of convenience) is dangled in front of them. Yes, troubling, but I think there’s precedent for this kind of thing.

If we are to go cashless, the most important question to ask is – what happens to the poor (and innocent) people who deal in cash only, have no credit cards, no smartphone, and no reason to want anything but currency in hand? Will ours be a society that leaves them behind? [2]. If I were a betting man, I would say no. Cash is a more valuable holdover from our past than we may care to admit, and electronic currencies like Bitcoin are proof of that.

1. Beyond, well, robbing you blind
2. In Canada, the post office plans to phase out home delivery. This should leave many elderly and less advantaged without any way to get postal mail.