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A cashless
society has deemed to be already underway with central banks, governments and
other financial intermediaries playing proactive roles in establishing the
structure and framework to facilitate electronic and digital cash transition
and strategize to drive its growth. With global consumer payments changing
radically throughout the last 15 years from physical to digital payments, in
2012 card payments overtook cash payments and transaction methods  which signified the transition towards a
cashless with the primary beneficiaries being Visa and MasterCard shown in
figure 1. There are many social and economic benefits that will arise if
society were to become cashless, in a perfect digital utopia where money is
easily transferred. The advantages are clearly in organisation efficiency,
saving in costs and financial security which leads to greater profitability. Millennials
appreciate the increase in electronic payments and have been driving the want
for a cashless society, eight out of ten young adults do not carry any cash
resulting in the proliferation in credit and debit card innovation and
payments. The benefits that arise are simple to comprehend. Increasingly, many
countries globally are indefinitely making moves pushing towards a futuristic
cashless society. John Cryan, Deutsche Bank’s Chief Executive predicted at
Davos 2016 that cash there’s a possibility cash wouldn’t exist in ten years.
With Australia and Sweden at the forefront as they could be cashless by 2022
with only 20% of consumer expenditure using cash which highlights the phasing
out of cash(Bufi 2017). Also, recently small firms in India have dynamically
explored cash alternatives to eliminate manual processes since the governments
introduction of demonetisation.

 

Figure 1- Consumer spending patterns

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There are
many benefits that arise from a consumer perspective and those who portray
enthusiasm of the likelihood of abolishing cash as a transaction medium believe
the instant benefits would be profound and fundamental. The simplicity of
financial transactions is the key incentive when stimulating society to become
cashless. The associated costs of holding physical money will be eliminated and
rationalised with less cash being handled and circulated through society. It
saves both effort and time for the entities involved and individuals don’t need
to carry physical cash in their wallet which increases and provides the
opportunity for small businesses to conduct their daily financial activities
without visiting bank branches, or for consumers to even queue for an ATM will
become obsolete. Technological developments have created algorithms that
directly assess financial transactions, concluding their nature, location and
even the appropriateness of a consumption choice. These algorithms are now
unrestricted and implemented by credit and debit card firms. Now consumers can
track all their spending habits and purchases allowing them to be more
financially disciplined as all their transactions will be available to follow. There’s
increased financial security as some consumers may feel uncomfortable in
possession of large cash volumes and it’s very easy to shut down your digital
wallet if it becomes compromised. Even if your phone or wallet is stolen, your
credit card is strictly protected, verification processes and pins make it hard
for your phone to be accessed(Bufi 2017). Theft of cash would be an
impossibility with bank robberies and cash robberies becoming very extreme
occurrences. Safety of certain professions such as shopkeepers, taxi drivers
and cash assistants could end with the cruciality of holding cash quantities
and could decrease the sale of illegal drugs and violent crime related
incidents.

A cashless
society particularly benefits the poor as it enhances financial inclusion,
where individuals can consistently pay bills without the use of a bank account.
Consumers in developing nations are monetarily marginalised with a lack of
affordable and adequate financial facilities available to allow the poorest in
society to access banking systems. Digital services and mobile systems have
made financial services more accessible enhancing our banking systems and it
will automatically help reduce poverty in areas that do not fall in a banking
network. In Somalia, 51 of out every 100 have a mobile phone subscription
(Rowley 2016). The country’s banking system has nearly dissolved therefore
Hormuud Telecommunication Company have developed a money transfer system have
allowed Somalians to up to $3000 a day in the country, as for many citizens
holding cash would make them vulnerable. But in the developing economy many
heavily rely on cash as becoming cashless can crush the costs and risks of
holding cash, for instance, in the event of a natural disasters can obliterate
a large quantity of cash holdings. (Singletary 2012).

From a
government viewpoint there are numerous benefit. The government can impose full
transparency in transaction which will decrease gaps between firm’s actual and
stated outcomes and incomes. Accounting systems will become more accurate as
transaction histories and figures are maintained with a complete record of
activity. Cash is a severe implication when evading tax. It has been claimed
that tax evasion strips up to 70% of a countries tax income (Farrell 2016) and the
activity in the shadow economy is now exceeding 30% as a percentage of GDP in developed
economies(Constable 2017). Going cashless increases money trails and digital
footprints creating difficulty when hiding money as it is easier to locate and
catch tax evaders, increasing tax revenue gained by the government. With a
possibility of tax revenue increase this could also offset a fall in income tax
or national debt being reduced. Calls for the eradication of cash have strengthened
by substantial evidence that high-value paper notes increase the scope and have
been prevalent in other illegal or fraudulent activities such as money
laundering, black money or undeclaring assets. The former chief of Standard
Chartered Peter Sands, claimed criminals move more than £1.4tn around the world
each year (Farrell, 2016).

Going
cashless will save governments money as physical money has costs associated in
its production and distribution. From the costs of manufacturing, turning wood fibre
into paper and the machinery to print notes, to the circulation of counterfeit
bills and administration implemented to spot them and the large amount of money
spent by financial organisations to count, secure and manage physical money.
Even though all these costs won’t be eliminated if society were to be cashless
but there will be less ongoing costs related with money management in the
economy.

Banking is a
scheme of mutual indebtedness. Banks owe society a lot of money however the
public also owes banks a lot of money. All deposits are debts to the account
holders when requested must be paid with cash, but the money was generated by
debts created from people taking out loans from financial institutions. Once
these debts are paid, banks deposit money is withdrawn from circulation and
money supply (M1) contracts. Bank runs take place when there’s significant
distrust within a banking system and we’ve seen this happen recently in
countries such as Cyprus. Depositors will instinctively withdraw their money if
they deem their deposits to be at risk which could be due to their bank being
on the edge of a financial breakdown or an imminent failure of the entire
financial system. Cyprus was on the verge of a financial collapse which pressed
banks to shut, declaring many consecutive ‘bank holidays’, prohibiting
depositors from accessing their funds. Large depositors such as had to forego
47% of savings beyond 100,000 Euros, leading to losses exceeding 4 billion
Euros. The main way to avoid bank runs which is simple but effective will be to
abolish cash as consumers won’t be able to withdraw their money if they sense
risk on their deposits. (Andersson 2015)

Going
cashless would also allow banks to set negative interest rates. Negative
interest rates are becoming an apparent way to preserve capital in banking systems.
They are set to avoid destabilising money movements when the economy is in
crisis and to stimulate consumption and investment increasing aggregate demand.
In developed economies negative interest rates are an ever-present threat that
isn’t plausible in society with nominal interests zero bound as they have been
hovering slightly over zero percent in the last decade which is shown below in
figure 2. Following on from the global financial crisis in 2008, shown in
figure 2 many central banks in developed economies lowered their interests to
attempt to stimulate their economies through monetary policies, instead of
using other monetary strategies. However, many nations are weary of the threat
or to set interests into negative territory and if society went cashless it
would be difficult for savers to avoid these negative interest rates. It will
be advantageous if banks decide to impose negative interest rates in a cashless
society as consumers won’t be able to access their bank accounts and hoard
large amounts of cash.

 

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