A Cashless World Would Be an Economic Disaster
While cashless payments are often presented as ‘new money’—primarily by cashless service providers—the idea that cash is outdated ‘is both misleading and dangerous’. A recent Business Insider article explores the strengths of cash, how it supports many facets of modern life, and the pitfalls of eradicating it.
Written by Brett Scott—a former financial broker turned journalist who published Cloudmoney: Cash, Cards, Crypto and the War for our Wallets earlier this year—the article warns the current push towards a cashless world could result in millions of people being excluded from the global economy altogether, and makes the case for why even those who prefer cashless payments should reject a totally cashless society.
[A cashless world is] a world where even the tiniest of payments will have to travel via powerful financial institutions, which leaves us exposed to their surveillance and control—and also their incompetence. A payments system without cash is one dependent on banks that are prone to financial crises, systems failure, and cyberattacks.
Scott observes that digital bank transfers are not an upgrade to cash-based systems, largely because cash underpins cashless transactions. He draws a comparison with casino chips: a limited-purpose form of currency, issued by casinos, which would ultimately be worthless if they could not be redeemed for cash. The numbers in bank accounts are effectively ‘digital chips’ that can be controlled with payment cards and apps, but these chips remain ‘psychologically—and legally—anchored to the cash system’. When someone goes to an ATM to withdraw cash, they are effectively demanding the redemption of their digital chips.
Scott also notes it is currently unclear whether or not a digital monetary system could exist in the total absence of cash. Without a physical manifestation of value, the promise of digital chips is hollow. Despite this, he points to banks in many countries closing ATMs and retail bank branches, eroding people’s access to cash—to which they have a legal right—and blocking exits to the digital financial system, whereby someone can ‘cash out’ their digital chips for use beyond the control of financial institutions.
There’s no conflict maintaining both cash and digital money systems. Unlike horse carts versus motorcars, cash runs on entirely different tracks to digital payments. It’s a parallel system, and from a user’s perspective, cash is more like the bicycle of payments than the horse cart.
While cash cannot cover the same distances as transnational digital systems (or cars, in Scott’s metaphor), it is ‘great for short outings, it’s more inclusive, and it certainly comes in handy when the other system gets jammed up.’
Cash is resilient. Scott notes it won’t fail in a power cut or during a cyberattack, meaning societies currently have a vital economic fallback in the case of natural disasters or attacks that compromise other payment options. Any society that runs exclusively on digital platforms operated by vast institutions ‘is going to have major resiliency problems.’
Cash is the most democratic way to pay. Citing data from a 2021 Morning Consult poll, Scott says 10 percent of American adults do not have a bank account. The poll also found ‘unbanked individuals are poorer, younger and less white than fully banked U.S. adults’, meaning full reliance on digital payments—and thus accounts with financial institutions—would risk a divided economy, on one side of which people would be excluded from participation.
An attack on cash is an attack on the local businesses that form the backbone of communities.
Scott adds that, given the nature of cash is to be ‘localised in its movement’, it’s more likely to be used within communities rather than sent away to larger businesses. This benefits local economies, which are inherently more fragile than big cities and companies, but also of vital importance to the people who live and work within them.
In the long term, it’s in everyone’s interests to maintain an offline, inclusive, and localised form of money that you can switch to when the chips are down.