What Is a Cashless Society and How Does It Work? (2024)
A cashless society is one in which cash, in the form of physical banknotes and coins, is not accepted in any financial transaction. Instead, people and businesses transfer money to one another digitally—via credit or debit cards, electronic money transfers, cryptocurrency, or online and mobile payment services, such as PayPal and Apple Pay. Although no existing society is cashless, many economists believe that consumer preferences, competitive pressures on businesses, profit seeking by banks, and government policies designed to facilitate cashless transactions will soon lead to at least a few cashless societies.
There are various measures of cashlessness, yielding different rankings of countries along a “cashless continuum,” but most experts agree that Sweden is now closest to the cashless ideal. Cash is now used in less than 15 percent of transactions in that country, and the value of cash in circulation has declined significantly in the 21st century, now representing about 1 percent of GDP. Swedish retailers and restaurants are now permitted to refuse cash payments merely by posting a sign, and more than half of all Swedish bank branches no longer handle cash. To facilitate the transition to cashlessness, central banks in some countries have introduced government-backed digital currencies to replace or complement banknotes and coins.
Proponents of a cashless society argue that digital transactions are more convenient for both customers and businesses and that cashlessness would cut down on many criminal activities. They also maintain that the trend toward cashlessness is unstoppable, given the increasing digitization of economies and consumers’ growing preference for conducting daily business with mobile devices. The trend has been propelled, however, by banks that have intentionally made cash transactions less convenient for their customers (e.g., by closing branches and removing ATMs) to encourage the use of digital services that are more profitable. The global coronavirus pandemic that began in 2020 also contributed heavily to an increase in touchless and cashless transactions.
But there are potential drawbacks to a cashless society. First, it would largely exclude “unbanked” (mostly poor) persons, who do not use or cannot obtain a bank account. Second, it could invite serious breaches of privacy, because few purchases and sales would be anonymous. Third, even minor technological glitches could block access to funds, and systemic failures due to natural disasters or massive hacking could make all purchases and payments impossible. Fourth, during a severe economic crisis threatening the solvency of major banks, depositors would be unable to rescue their money by withdrawing it in cash. Nor could depositors prevent troubled banks from taking a portion of their deposits in “bail-in” scenarios, under which the institution’s shareholders and creditors, including depositors, are held responsible for its debts (in the U.S., up to $250,000 of each deposit would be protected from such seizures). Finally, ordinary depositors would not be able to protect themselves from negative interest rates, which central banks in some countries (e.g., Japan) have imposed to combat recession or deflation after cuts in positive interest rates to near zero have failed. Negative interest rates permit private banks to charge depositors what amounts to a fee for holding their money, thus encouraging them to spend and invest. Indeed, some economists consider that to be an argument in favor of a cashless society, as it would make painfully deep negative interest rates workable because they could not be avoided through cash withdrawals.
In a cashless society, financial transactions are not conducted with physical banknotes or coins, but instead with digital information (usually an electronic representation of money).
A cashless society is a concept in which money changes hands through digital means rather than physical banknotes or coins. In practice, this would look like customers going about their day—buying coffee, paying bills, shopping for groceries—without ever touching a bill or coin.
The downsides of going cashless include less privacy, greater exposure to hacking, technological dependency, magnifying economic inequality, and more. Credit and debit cards, electronic payment apps, mobile payment services, and virtual currencies in use today could pave the way to a fully cashless society.
Sweden, the first European country to introduce banknotes in 1661, became the world's first cashless society on 24 March 2023. Finland and the UK are top–ranked to become cashless societies as well. Poland, on the other hand, has scrapped plans to limit cash payments to ensure freedom of choice.
When the transactions in an economy are not heavily based on the money notes, coins or any other physical form of money but are aided by the use of credit cards, debit cards and prepaid payment instruments, such an economy is called cashless economy.
More than half of all bank branches no longer handle cash. Seven out of ten consumers say they can manage without cash, while half of all merchants expect to stop accepting cash by 2025 (Arvidsson, Hedman, and Segendorf 2018).
Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.
Summary: Americans are using cash less frequently and making payments more often by credit card or through payment apps. Yet, many CFI customers still like having cash as an option.
When Will Society Become Cashless? While it's impossible to accurately predict when the US will move to a fully cashless society, a Gallup survey reveals that 64% of Americans believe that all payments will become electronic at some point in their lifetime, with the figure jumping to 70% for those under 50.
When people are handling less cash, bank robberies, burglaries and corruption drop. Because cash is essentially untraceable, it's a useful tool for criminals, where digital currency is less easy to exploit, and can be shut down quickly if it falls into the wrong hands.
Even in a growing global economy, that means more than $2 trillion dollars of cash that was in global circulation in 2020 won't be around in 2024. In North America, cash is projected to account for only 8.7% of all POS transactions by 2024. If you're looking for a cashless society, it's increasingly easy to find.
It can affect anyone - but those living in poverty are particularly vulnerable. Those with poor health and disabilities or caring responsibilities can be disproportionately affected by financial exclusion. Caroline told BBC Scotland News: "I have become very dependent upon delivery services but they charge you as well.
Identity theft and compromised personal information are potential dangers in a cashless economy, but privacy might be compromised in other ways too. When you pay digitally, you always leave a digital footprint, and this footprint is easily monitored by financial institutions.
Without cash, we would be forced to leave a record of everything we buy. While this may not bother some, there are many who worry that governments and/or corporations could use our purchasing histories as a way to track us, monitor us, and even intimidate us.
Nope. We might use less cash, but our society still has a long way to go before it's totally and completely cashless. And just because some stores didn't want to accept dollar bills for a while (and maybe still don't), that doesn't mean a cashless society is here to stay.
Physical currency isn't becoming obsolete any time soon, so it's important to weigh up your options before deciding to go fully cashless in 2024. Ensuring you can accept some cashless payments though, is essential to keeping with today's trends and customer expectations.
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Introduction: My name is Madonna Wisozk, I am a attractive, healthy, thoughtful, faithful, open, vivacious, zany person who loves writing and wants to share my knowledge and understanding with you.
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