Smart and online technologies are changing the way we pay, however, cash is still the most attractive means of payment for a huge majority of people worldwide. We look at 10 key reasons for the relevance of cash. Cash ensures stable currency systems. It is not only the most secure means of payment and resilient in terms of crisis, it also reflects a nation’s identity as banknotes and coins are often a nation’s calling card, valued by people beyond their monetary worth.
Cash is democratic and inclusive
Cash is the only payment method available to everyone, regardless of background, circumstance or ability.
Access to cash is a constitutionally guaranteed right. Globally, there are 1.7 billion unbanked people relying primarily on cash and 36% of Open Banking experts cited social exclusion as the most negative impact of a cashless society.
Cash is available to anyone and everyone, without barriers, and regardless of their social status, financial standing, creditworthiness, age, gender, race, nationality and ability. Cash does not involve fees and no registration is needed to obtain, spend or accept it.
Cash is also the payment means of choice for the visually impaired. Many countries issue banknotes with features specifically tailored to this group.
Cash protects privacy and freedom of choice
Cash can be saved privately and anonymously, thereby offering an individual autonomy and opportunities that may otherwise be impossible.
In an era where every digital and mobile transaction leaves a data trail, paying cash is the only way to protect this right to privacy – this is a core reason for why cash must remain a choice in the payments landscape.
Free citizens are entitled to privacy and the protection of their data, but cyber crime is rising exponentially, thus restoring and appreciation for cash as an important store of value are. Adding new options to the payments landscape should never mean removing cash as a choice.
In the UK, 74% of people say a cashless society would take away the people’s right to choose. In the USA, 73% of consumers use cash regularly despite other options being available. A recent ING survey on cash and crypto found that 54% of Europeans, 59% of Australians and 65% of Americans disagree with the statement, “I would prefer if cash did not exist”.
When it comes to purchases, personal preferences should remain exactly that – personal. Abolishing cash would infringe both on citizens’ rights to informational self-determination and on freedom of choice.
Cash empowers citizens, making them less vulnerable to selective advertising and cybercrime. Cash also stabilizes power between financial authorities and the public that goes beyond interest rates, 1 in 10 Open Banking experts cite greater government control as a negative impact of a cashless society.
Cash is secure
Cash is the most secure form of payment with banknotes being 99.9988% genuine.
There is no form of payment as secure as cash. With sophisticated security architecture and continuous innovation in security features, cash is almost impossible to counterfeit.
Statistics show, year on year, how the chance of receiving a counterfeit banknote is increasingly unlikely, while the chance of falling prey to in card fraud, cybercrime and online fraud is exponentially likely.
In the euro area, for example, the latest data from the European Central Bank show cash to be 99.9988% secure. There are 22 billion genuine euro notes circulating and only 262,000 counterfeits were withdrawn from circulation in the second half of 2018, a decrease of 13% less than that in 2018 and 27.8% less than in that in 2017.
In the UK, there are 3.8 billion genuine banknotes in circulation and less than 1 in 5,000 banknotes are counterfeit. According to the Bank of England, the value of banknotes taken out of circulation amounted to £5 million in the first half of 2019, much lower than what is lost in cashless fraud. According to UK Finance, annual financial fraud losses across payment cards, remote banking and cheques amounted to £844.8 million in 2018, up 16% compared with 2017.
Cash keeps growing
Demand for cash is increasing globally, both in absolute value and relative to GDP.
Cash is a growth market, with regard to both the product itself and to the infrastructure that surrounds it. According to the G4S Global Cash Report, cash in circulation relative to GDP has increased to 9.6% across all continents, up from 8.1% in 2011.
The total number of ATM cash withdrawals worldwide dropped by 3% to 95 billion in 2018… but cash withdrawal levels [are] expected to rise in over half of the 63 major markets surveyed by RBR London. Demand for cash is also expected to continue to increase in more than half of Asia-Pacific markets.
Cash minimizes risk
Cash bestows agency (autonomy) and is a safety net for individuals and nations, alike, against cybercrime and power outages.
With cash, there is no need to put all your eggs in one basket. Countless scenarios consider the risk of a terrorist attack on a country’s financial infrastructure. If that were to happen, it would lead to a complete breakdown of all financial services. Without cash, the country in question would no longer be able to function; with cash, the economy can be kept going. In an EY poll of Open Banking professionals, 20% cited potential for mass outages as the most negative impact of a cashless society.
In the private domain, the same principle applies: even in the very unlikely event of encountering a counterfeit banknote, it would be an exception (see Cash is Secure) and the extent of the loss ends at the monetary value. When someone hacks a system to obtain a user’s password, thereby circumventing their online security, a victim’s account may be emptied and their personal information extracted.
Cash is universal
Globally, cash remains the most widely used payment instrument.
Cash is still the payment method of choice for daily transactions for a large number of people, both in developing and in industrialized countries. In many developing countries with a large number of unbanked or underbanked people, cash is often the only payment method available. Africa appears most reliant on cash, whereas Oceania seems to have the lowest cash dependency. South America has by far the highest cash dependency relative to its GDP at 16%.
According to the G4S World Cash Report, 75% of countries report cash is used in over 50% of transactions. According to an ECB 2017 working paper, cash is used in 79% of POS payments across the euro area. The cash debate concerns everyone because cash is the one product that everyone and anyone cash use to participate in the social economy
Although there are significant geographic variations, an estimated 80% of all payments worldwide are still made using cash. M-Pesa in Kenya may have had half a trillion transactions in 2012, but 99% of all retail transactions following the transfer of money via M-Pesa were still conducted in cash. Even in the US, at 32%, cash makes up the single largest share of consumer transaction activity and is the dominant instrument for low-value payments.
Cash satisfies a universal inherent need
History shows that tangible monetary systems have been in universal use since the stone age, which suggests that using cash or other tangible tradables is a universally inspired practice.
History has shown that the concept of monetary systems involving tangible values – from cowrie shells and beads to sacks of grain and cigarettes (as illustrated in the famous Radford study, “The Economic Organization of a POW Camp”) – constitutes archetypical behavior and is deeply entrenched in the collective consciousness of all peoples. If cash is taken away from people, they will, invariably, find other ways of exchanging tangible values, most likely neither as safe nor as controlled.
In the UK, 70% of people say cash gives them peace of mind, and that’s likely because people experience a psychologically engrained sense of security from beholding a universally accepted store of value in their hands.
Cash also reflects a nation’s identity inspiring cultural unity. Banknotes and coins are often a nation’s calling card, valued by people beyond their monetary worth. Their motifs depict a people’s defining moments and historic landmarks.
Cash is tangible
It is much easier to plan your spending when you can see the physical evidence of what you have left.
Cash helps cost control! Control of spending and household expenses – may be vital for a large number of people, but it is also hard.
Digital and virtual forms of payment make this even harder, as paying by smartphone or credit card render expenses invisible and abstract. Money spent is no longer money out of pocket and is therefore difficult to monitor. People spend more money, and often more than they can afford when they don’t pay cash. Research into payment transparency have shown how tangible transactions are better recorded in the brain than digital ones, making cash the best way to stay in touch with your bank balance.
Using actual cash is also how most people first learned about money, and children who watch their parents handle finances are more likely to be better at handling their own finances later in life. In a cashless world, children will struggle to grasp the concept of money… literally.
Cash is cost-efficient
There is no cost to the customer when using cash, cash provision is a national responsibility, so the costs of doing so are transparent and low.
Even though the methods of valuation may vary – because the provision of cash is a national responsibility – it is possible to establish the cost of cash for every nation, and figures are available and transparent. Cash payments have the lowest social costs. Due to a lack of reliable data, meaning a lack of transparency, so far nobody has been able to estimate the cost incurred in developing and setting up countless technologies and systems that guarantee security for virtual payments. They do not show up in any statistics.
These costs are privatized, that is to say paid for by the retailer and the customer. At the same time, the cost of cybercrime is high. In 2015, in its Special Eurobarometer on cybersecurity, the EU noted: “Whilst the value of the cybercriminal economy as a whole is not precisely known, the losses are thought to represent billions of euros per year.”
Cash also takes less time and money to spend than people think. According to research from Deutsche Bundesbank, cash payments are 7 seconds faster than PIN card payments. Cash is highly valued in Germany, where 88% of people confirm they want to keep cash an option.
Cash is resilient
During national crises, the demand for cash sharply rises. We trust real currency and it’s in almost every country’s top recommended emergency items.
In a crisis, a solid financial system must prove how robust it is. Empirical data shows that in a crisis, the demand for cash typically rises sharply. The reason for this phenomenon is: trust in real currency.
Cash is item number five on the US Homeland Security emergency supply list, right after medication, infant formula, pet food, and family documents. There have been many natural disasters as well as political and economic crises in recent years. During major floods, earthquakes or tornados, almost inevitably more money is printed to meet the rising demand for cash. Banknote circulation usually remains uninterrupted because cash is kept at central banks’ offices outside the natural disaster areas. How do you pay via card or smart device when the electronic infrastructure has crashed? Cash does not crash.