What is a cashless economy?
A cashless economy uses digitized money for all transactions. In this type of economy, conventional money i.e notes & coins are not acceptable for transactions.
At the time of this writing, in late 2019, several economies are on the path to become fully cashless. Sweden & China are on the fast track. When cashless economies are fully mature, it is likely that governments will take these actions:
- Strip physical cash its legal tender status
- Order their central banks to stop minting paper bills and coins
But will this really come to fruition? Or is this another musing of a hysterical mind? There is a slight chance that I'm overexercising my imagination. There are good reasons pointing towards an era of the cashless globe.
Reasons why societies are going cashless
Digitized payment systems are more convient
Digital cash is convenient because it is often accessed easily. This is true in all urbanized areas and to a lesser extent among rural communities.
Sometimes you forget to carry enough money. Sometimes you forget to carry any at all. Sometimes you don't think that you need it; until you unexpectedly need it.
On lesser occassions, you will forget to bring your card too. Even in such situations, you will most likely have your phone with you. This way, you somehow always have access to your bank account. That is if you have mobile banking enabled.
You may be one of those witty characters who like to remind everyone the obvious. That paper bills and coins are lined with dirt. After all, people keep their money in all funny places e.g dirty pants, bras, shoes, socks. You know, all the ‘decent’ places people hide their money, L.O.L.
0s and 1s can be moved around at the click of a button or the swipe of a card. Meaning you don't have to ponder over all the ungodly places your money might have been stored.
To the governments of the world, they can cut back on the cost of minting paper bills and coins.
Physical cash is prone to theft
There is a joke that goes like,
“It's not stealing, it's retrieving."
Some people are known to take this joke literally; consequences be damned. The rest of us are either scared of the consequences of retreiving or disagree with the joke.
People that will ‘retrieve’ your money whenever circumstances align, pose an ever-constant threat to everyone who has physical money.
This way, people who have hard cash have to be extra diligent by:
- Investing in security systems e.g surveillance cameras, guards, locks.
- Hide their money in secure locations e.g safes, socks …
- Constantly keep stay on guard like intelligence operatives
Governments want to crack down on unlawful activities
Governments constantly yearn to thwart illegal activities that may be causing problems in their societies. Such activities may include the sale of illegal drugs, weaponry, counterfeit money and anything they consider illegal.
In 2018 Australia began taking steps to limit the size of transactions that can be done in cash. The European Union was considering putting a limit on cash use but later halted the initiative following concerns on peoples’ freedoms.
Governments also have a bone to pick with people to avoid paying their taxes. Such characters have perfected playing hide & seek with the taxman. After all,
“the reason people don't pay their taxes with a smile is because the taxman always insist on the money.”
In a cashless society, the taxman will have a wider reach, maybe even the infamous all-seeing eye. This way, the general wisdom that “tax avoidance is legal but evasion is illegal”, will find a narrower application.
Financial institutions want to compete with decentralized currencies
The advent of Bitcoin and other cryptocurrencies has helped accelerate the digital revolution in the banking sector. The probability that cryptocurrencies will replace normal currencies is delusional.
However, it is clear that blockchain, the foundational technology behind digital currencies is here to overthrow the old order of things.
Financial institutions are now moving to embrace this technology to create their own digital currencies. Centralized currencies that they can control.
Disadvantages of cashless economies
People will lose their privacy
Data is the core of digital payment systems. Every transaction is recorded in a database. Or “in the cloud”; which is jargon for the same thing.
To authenticate clients during a transaction, current technologies cross-reference specific metadata unique to the individual making the transaction. Thusly, transactions cannot be made anonymously.
With effort, companies can develop technologies that would need a bare minimum of a user's data. However, that is improbable because:
- There are no incentives for financial institutions to collect lean data. In most cases, they would stand to profit more by collecting more data.
- Governments would frown upon this kind of approach. It's simply in governments’ interest to keep track of what its citizens are buying and selling.
Consequently, financial institutions will record every intimate, mundane and non-intimate transaction that people make. Consider some intimate transactions:
- What you bought for lunch, breakfast or dinner. What type of beverages you buy most.
- What your eating patterns are like
- Where you bought a packet of condoms, how often and when
- What kind of garments you bought. What colors you purchase often.
- What books, magazines, ebooks you're reading.
- If you buy any type of prescription drugs, that information will be saved somewhere.
- Where you went on vacation. What you bought and whom you were with.
In short, your hobbies, life philosophy, health status, affairs will be saved somewhere waiting to be scrutinized. This way, society will be fully transparent. More transparent than what you may have seen in wayward pines, person of interest or any other show that touches on the subject of privacy.
The risk of authoritarianism
In a free society, the need for privacy be debated. With their freedoms, they can confidently say that they have nothing to hide. Maybe it is true wanting to keep some things to yourself means there's something suspicious about you.
These are people who haven't stopped to think about why they wear clothes, put curtains in their house, buy cars with tinted windows. It's certainly not because they wish to hide bad stuff about themselves. It's because they want to keep the intimate under wraps, and there is dignity in that.
They say, “the more things change, the more they stay the same”.
In the context of freedom, it's simply naive to think that societies will always be free & democratic. Make no mistake,it's in the best interest of everyone to root that freedoms expand and tyranny diminishes.
However, in the event that our societies go through another round of tyranny, it would be best if people's lives weren't transparent before those who would oppress them. A cashless society could open the doors to unchecked surveillance.
Homeless societies will suffer
As the rest of the world makes huge strides, the extremely poor and the homeless are often left behind. Sometimes, they also suffer the brunt of this progress. A cashless revolution would be brutal to these folks.
A cashless society requires people to have phones and cards. The implications would mean that they would be required to obtain these utilities. What was once a luxury for them would become a necessity.
For instance, phones need to charge on a regular basis. Not to mention that they may need monthly subscriptions.
The homeless who regularly rely on handouts to survive. Clearly, the advent of a full-blown cashless society would be a reckoning for some time.
People will lose real ownership of their money
Sometimes, hard cash is used as a temporary store of value. In fact, having a given amount of hard cash in hand can give a person a true sense of ownership. This especially important when people lose faith in the banking system.
Once our societies become fully cashless, that privilege will be a thing of the past. When and if that happens, your money will always be in the bank. Sellers and buyers alike, transactions will involve crediting one bank account and debiting another bank account.
You can have your card or your mobile account with you, but never you money with you. Henceforth, you must trust that the values of your invisible 0s and 1s in the bank will remain valuable and accessible by you.
In the second episode of 2019's HBO show, Years and Years, the danger of having all your money in the bank is laid bare. In the show, a man loses his entire life savings (at least a million quids) when the entire panics and runs to the banks. Only to find that the banks have no deposits to service the overwhelming withdrawal requests.
For all the talk of people spending most of their time on their phones, a cashless economy would have none of it. Having no hard cash would yet be another incentive to always have a phone with you.
Most financial systems will likely take time to integrate into a solo system. Until then, people will have to install a slew of mobile applications to process transactions.
Will hard cash really become a relic?
There are considerations standing in the way of a full-blown cashless global economy:
Businesses want to serve more clients
There are businesses that don't accept hard cash for their services. Those businesses only operate where the law doesn't compel them to accept cash.
However, in many jurisdictions, cash is recognized as legal tender. Not accepting cash is considered as some sort of snobbery or hubris and may not even attract legal action.
Even in places where people don't often pay in cash, businesses are reluctant to turn away clients who prefer to pay in cash. As some people who love they liberty, paper bills and coins would say,
If you refuse my cash, I reject your service.
The cashless system is still immature
It will take time to develop the infrastructure needed to facilitate a cashless global economy. Prevailing systems are currently to prone to dangers such as cyber-attacks & power outages. Problems that could lead to a single point of failure scenarios. Scenarios wreak significant havoc, panic, and instability.
Like traditional systems, there are several other technologies needed before the needed infrastructure matures:
- High bandwidth and low latency internet technology - Availability of this technology needs to be ubiquitous.
- Internet of things - These technologies will help devices such as mobile phones, mobile scanner & card scanners to seamlessly communicate with each other.
- Cryptography & network security systems These technologies will help make it difficult for hackers to compromise systems.
- AI and Blockchain technologies - These systems will help ensure data integrity and automatically detect, isolate & quarantine suspicious activity in real-time. After all, in the world of 0s and 1s seconds of negligence could lead to untold havoc.
Who will have the final say?
On the surface, it appears as though the masses determine what direction the world takes. However, the masses are nothing but collective human behavior.
Human behavior is, in turn, susceptible to all sorts of conditioning and manipulation. Similarly, it is also true that human behavior is not driven by rational thinking nor does conditions for such perfectly exist.
The masses (consumers) are therefore guided by industry. There are two players in the digital currency industry.
Centralized digital systems
These systems are backed by the ‘trust’ of accountable financial actors. These include national banks, private banks, and companies such as visa and MasterCard. Their children then include PayPal, Stripe, Google Pay, ApplePay, MPESA. I'd bet even Facebook's Libra falls under this category.
Ultimately, these systems converge to one point. Like, say, a central bank by whose rules they operate.
Governments readily put their blessings behind these types of systems. After all, governments keep central banks under a leash. Which is good for stability and public trust.
Decentralized digital systems
These systems include systems similar to the prevailing decentralized cryptocurrencies with inroads to the centralized systems. The problem with this system is instability.
Nobody wants to constantly imagine that the value of their digital coins may be dramatically wiped out during the next dive.
What be an ideal outcome?
The genie is out of the bottle and the threat of hard cash becoming an antique grows bigger every day.
The best we can hope for is that decentralized currencies will stick around as an alternative. Consequently, you can keep some of your transactions private.
Make no mistake, the centralized systems will still register that some amount was taken in and out of the system. However, it will not register the details you purchased outside. This way, you get to preserve some of your flexibility, privacy, freedom, and dignity too 😊.
Is it possible? Only if governments are not over-ambitious in controlling every aspect of transactions. I'm almost not holding my breath.