The rise of contactless and mobile payments may make purchases easier and simpler, but could it eventually lead to the elimination of cash entirely?
There’s no doubt that cash payments are becoming an increasingly unpopular method of payment; the Federal Reserve estimates that there will be $616.9 billion in cashless transactions in 2016, and increase of $556.9 billion in just six years.
Sweden in particular is in danger of allowing cash payments to disappear – the amount of cash in circulation as a percentage of GDP in Sweden has dropped from around 3 percent in 2008, to roughly 1.8 percent now.
On the whole, governments and monetary committees have supported this trend, for a variety of reasons. There are arguments that contactless payments are more secure than cash, that it will prevent crime and makes it easier to control the monetary policy of a country.
Recently the European Central Bank decided to remove the €500 note from circulation as a way of making money laundering and organised crime more difficult and according to German newspaper Handelsblatt, a proposal to cap all cash transactions at €5,000 was made in February 2016 by the junior partner of the German coalition government.
So, would a cashless society really be better for everyone?
Eliminating cash would increase security
In theory, by having a record of all transactions it would decrease crime, money laundering, and tax evasion.
However, it may not be as simple as it sounds. According to Deutsche Bank economist Heike Mai, “it is debatable that a cashless society would mean less crime.”
“For example, the ratio of damage caused by card fraud to the value of counterfeit notes in circulation is over 10 to 1.”
Without cash, criminals would arguably adapt and invent new methods to transfer money undetected.
“The available evidence suggests that restrictions on cash use will probably reduce for-profit crime but will certainly not eliminate it. Other means of storing and transferring illegally obtained assets without leaving many traces are already in use”, Mai continued.
Better for government monetary policy
Forcing everyone to keep money in a bank account and spend from that could have the side effect of empowering countries’ central banks.
By eliminating the prospect of cash savings, monetary policy options like negative interest rates would be much more effective if implemented.
Charities stand to benefit
On average, when people pay on card rather than cash the transaction amount tends to be higher – something that charities have not failed to notice.
Several major charities, including Oxfam, NSPCC and Barnardos, have been trialling contactless payment boxes of late, effectively raising almost three times as much as they would if donations were only accepted in cash. According to Barclays, this shift towards contactless giving will earn charities an an extra £80 million between them
The downside: the end of financial freedom?
The most obvious – and largest – concern for many is that lack of privacy using a card entails. This is something that has increasingly been the topic of conversation in Europe, after the EU Commission announced a plan to “explore the relevance of potential upper limits to cash payments”.
Being forced to use a card, and thereby leave a record of every transaction one makes, is an that many may find unnecessarily intrusive.
However, according to Deutsche Bank, the threat of a “cashless society” has been over-exaggerated. Heike Mai argues in Deutsche Bank’s report “Cash: In the long winter of its reign” that while use of cashless payments in the form of cards and apps is growing exponentially, cash is unlikely to disappear anytime soon for one major reason:
“Some economies just like using cash, for example, Germany, Spain, Italy and Austria,” Mai concluded.