'Cash is Dead, Long Live Cash' by Alan Wheatley

June 14, 2017 Share Source

It might be tempting to follow Sweden, India and South Korea's example of dipping toes into the cashless pool, but it is necessary to first look at the many nations that are keeping their toes adamantly dry. Without understanding the reasons behind their commitment to cash, it is absurd to dogmatically predict the end of the tried-and-tested currency option.

Alan Wheatley - an economics writer and editor (previously for Reuters) and co-author of The Power of Currencies -  looks at the arguments for and against going cashless in light of recent trends in a report published in the International Monetary Fund's Finance & Development Journal. 

Excerpt: The case for cash
...The trend toward digitisation may be irreversible, but Sands, for one, is not arguing for rapid removal of all cash, particularly in developing economies. “Low-value cash instruments are enormously flexible and robust payment instruments—you don’t need electricity, Wi-Fi, or cellular signals to make them work. Nor do you need to be literate,” he says.

Cash is also entrenched in advanced economies, accounting for more than half of all transactions by volume in six of seven countries covered in a coordinated central bank survey. In Austria and Germany, the share was 82 percent (Bagnall and others). In every country surveyed cash use decreases with education and income. Why? Among other things, a glance in the wallet makes it easier for households on tight budgets to monitor their finances.

"The cashless society, as appealing as it may sound, is probably just as elusive as the much vaunted paperless office,"
" Yves Mersch Member of executive board European Central Bank

Plenty of reasons have been put forward to explain why Germany, for instance, remains addicted to cash. One is an aversion to debt (and hence to credit cards); another is the folk memory of hyperinflation. Researchers are dubious about the latter theory (Bagnall and others), but, importantly, they say consumers everywhere are not completely rational in their choice of payment methods.

"Decision-making is more of an emotional process than a cognitive process,” according to Frank van der Horst and Ester Matthijsen of the Dutch National Bank. “On balance, paying by cash triggers more positive emotions than paying by debit card,” they reported (Deutsche Bundesbank 2014). Think of it this way: isn’t it more satisfying to give a child a crisp new banknote as a present than to write her a check?...

Read full article here

Source:

Wheatley, Alan. June 2017. "Cash is Dead, Long Live Cash." Financial & Development (Vol 54, No 2). Accessed June 14, 2017. Web.

Last Updated: July 27, 2017