Recently, concern has been raised in the UK over the declining use of cash in everyday society. It has been established that in 2017, card payments overtook cash transactions in the UK for the first time. A report titled “Access to Cash” predicted a further declining trend of cash payments and called on authorities to act now, as millions of people could be left behind by the rapid digitalization process. Ron Delveo of the ATM Industry Association voiced his opinion that businesses should be legally required to accept cash.
ATMs are disappearing in many countries, which is a trend concomitant with closures and consolidation of the banking industry, affecting especially localities where banks cannot make a large enough profit. Banks are trying to induce clients to adopt other means of payments like cards and mobile platforms. As the maintenance of the cash infrastructure may become unprofitable for some companies, their exit from the market could trigger a disorderly breakdown of the system, warns the Access to Cash report.
Although it was in the UK that these developments received some negative attention by the media, it is Sweden that is acting as the vanguard of this trend, who alongside India, is discouraging the use of cash by withdrawing high-denomination bank notes.
Although the report was funded by LINK, the UK’s largest cash network, the report maintains it is independent from any outside source. Let us look at the possibility of a cashless society, weigh its pros and cons, and examine what role blockchain technology could assume.
POSSIBLE BENEFITS OF A CASHLESS SOCIETY
The reduction of costs is a strong argument, as it will enable banks and financial institutions to reduce staff and the number of branches. There are costs associated with digital money as well, especially the provision of proper security, which must be weighed against the printing, minting, transportation and storage costs of cash.
Prevention of money laundering is the benefit most promoted by governments, as cash, which cannot be tracked, is necessary for such activities. Forgery of money should also be made almost impossible with such measures.
Another factor to consider is the elimination of the monetary flows of the shadow economy. Unreported transactions that avoid taxation in the current system would now be subject to taxation, which would result in the strengthening of public finance.
Personal safety should also be included in the list, as individuals who carry or store larger amounts of cash are in danger of becoming victims of robberies and burglaries. One is permitted to speculate this type of criminal activity will diminish with the decreasing amounts of cash held by citizens.
DISADVANTAGES OF A CASHLESS SOCIETY
Cybercrime should top the list here. As digitalization progresses, so does cyber criminality. The core of the problem lies in the difficulty of anticipating the next form of cyberattack or scam. Education and information seem to be the best available tools accessible to the general population, as in many cases authorities can do little more than issue warnings.
Besides hacking and phishing, there exists risk to digital infrastructure such as power outages and internal errors. The citizens of the UK had a brief encounter with this scenario in September 2018, as several banks suffered IT failures at the same time, and Europeans experienced a Visa payment system crash due to hardware failure earlier in the year.
Erosion of privacy as the cost of total transparency – an issue that will likely be at the forefront of public debate in the years to come. This is not merely about the fact that every monetary engagement is recorded, but also about the question of who will have access to all the accumulated data, and whether or not they will use it to influence an individual’s behaviour.
The last issue that needs to be mentioned is more a sort of headwind to cashless society than its disadvantage – namely, tradition and force of habit. Cash has been in use for so long that the elderly and financially less astute would be left disoriented and easy prey to manipulation if society suddenly abolished cash.
BLOCKCHAIN AS THE RIGHT FINTECH ANSWER
Authorities around the world are cautious about private cryptocurrencies. Some central banks banned their use (ex. China, Russia and India); but this does not mean they are not considering some sort of public equivalent they could oversee. It is likely that some central banks will start issuing their own cryptocurrencies.
Another issue for governments are anonymous cryptocurrencies that offer refuge for the shadow economy within a cashless society, and find support among those who oppose total transparency of transactions and see them as too invasive of their privacy.
The greatest hindrance to wide adoption of cryptocurrencies as a unit of measure and means of payment is their volatility. There are many stable coin projects devoted to finding a solution to this matter, and 2019 should bring us a step closer to integration of the blockchain and traditional finance.
An interesting case to follow will be Japan’s plan to catch up with digital payment technologies before the start of the Tokyo 2020 Olympic Games. Combine Japan’s low number of credit and debit card providers and undeveloped e-payment platforms and familiarity with blockchain including some regulatory foundation, and you have an interesting experiment on your hands. Will Japan go straight for decentralized digital economy, bypassing the development of centralized digital payment solutions? Will the government develop its own blockchain or will they adopt an existing private cryptocurrency as legal tender? Observing this, one is inevitably drawn back to the question of taming volatility – a hurdle that must be overcome if decentralized cashless society is to stand a chance as an alternative to a centrally controlled one.
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