The advent of a cashless society: why is it important to prevent it?

Nobody is surprised that Western countries are increasingly moving toward a cashless society. But why is it so important to keep, and even encourage, cash on hand?

The recent announcement that Switzerland will hold a referendum on prohibiting a cashless society highlights a long-standing trend in which more and more politicians and citizens believe that using cash should be limited. Some even advocate for its complete abolition.

Cash use has declined sharply worldwide, and many countries are considering abandoning it entirely. The introduction of central bank digital currencies has heightened this speculation. A number of Nordic countries in Europe are also aggressively moving in this direction.

At the same time, it is evident that cash is required to safeguard a free society. It is critical to maintain our financial privacy and autonomy, engage different groups of people, and for unusual events where digital payments may not work.

Cash usage is falling

The use of cash fell sharply in the 1990s as electronic banking rapidly took off. The 2010s saw the introduction of various digital wallets and mobile payments, such as Apple Pay. The most popular digital wallet is Alipay, which already has 1.3 billion users globally.

Example of Norway

Norway is most likely the closest to a cashless society. Only 3-5% of all transactions are made in cash at the point of sale, 98% of Norwegians have a debit card, and more than 95% of the population uses mobile payment apps.

Example of Sweden

At the same time, merchants in Sweden, for example, have the right to refuse cash payments. At the end of last year, cash accounted for 8% of all transactions in the kingdom, compared to more than twice that figure a decade ago. In Norway, on the other hand, the Ministry of Justice recently proposed forcing the country’s businesses to accept cash. This, however, has not yet been formalized into law.

Example of Canada

In the Western world, cash-only transactions are already complicated. This was demonstrated last year when the Canadian government decided to freeze the bank accounts of hundreds of truck drivers protesting Corona restrictions. Not having a bank account is essentially a financial prison, where you can buy food but not pay for essential services like mobile phone calls. Obtaining legal aid has also become extremely difficult, as payment by bank transfer is typically required.

The European Union wants to limit the use of cash

Cash is viewed with skepticism in the EU and is frequently associated with money laundering and terrorist financing. The European Commission has also proposed a directive prohibiting cash payments exceeding €10,000. This includes transactions in which at least one party is a legal person, such as a corporation.

However, there are signs of a reversal in Europe. In February, the Swiss Freedom Movement announced that it had gathered enough signatures to hold a referendum on a cashless society. If it passes, the government must ensure that there are always enough banknotes and coins available.

Late last year, Italian Prime Minister Giorgia Meloni proposed that businesses be allowed to refuse digital payments of less than €60. She also wanted to raise the cash payment limit from €2,000 to €5,000. Under pressure from the European Commission, she was forced to abandon this plan.

The most significant cash users in the EU

(Estimate of the share of cash in total POS payment transactions in 38 countries in Europe in 2019 – Statista)

Corona crisis has prompted US businesses to refuse cash

On the one hand, technological progress is propelling the United States toward a cashless society, and the Corona crisis has accelerated this trend. At the same time, there appears to be a growing national awareness of the importance of cash.

Notably, in 2021, Congress passed the Payment Choice Act. One provision of the legislation makes it illegal for retailers to refuse cash payments. Furthermore, signs indicating that cash payments will not be accepted are prohibited. It is also illegal to charge a higher price to a cash customer. The Senate must still approve the legislation.

One of the reasons for the legislation was that many retailers wanted to prohibit using cash during the Corona crisis for fear of spreading the virus. However, researchers quickly refuted this, and it is important to remember that cash plays a vital role in US society. According to a Federal Reserve study conducted in 2020, cash is still used in 19% of all transactions. The average amount of cash carried by consumers increased by $20 to $74 in the same year.

According to Federal Deposit Insurance Corporation (FDIC) data for 2021, the share of US households without a bank or savings account fell to 4.5 percent. This equates to approximately 5.9 million homes, a 1% decrease from 2019. According to a European Savings and Retail Banking Group study, such households account for 4% of all households in Europe (ESBG).

A Gallup poll conducted last year shows that 64 percent of Americans believe the United States will “probably” or “very probably” become a cashless society. All transfers would be made electronically as a result of this. It’s time to give up.

Why is it important to preserve cash in societies?

• The main advantages of cash are freedom, privacy, and autonomy. Cash transactions guarantee people’s fundamental right to privacy, personal data and identity. Two parties can carry out a transaction without a third party and no trace of a specific person is left behind. To preserve people’s freedom and to avoid a move towards a surveillance society, it is essential to protect cash and encourage its use.
  Financial privacy is one of people’s most fundamental rights. Our privacy is under increasing threat from technological developments. An example is the digital currencies of central banks, which potentially allow all our purchases to be monitored and influenced. If governments or corporations monitor our payment behavior, this could jeopardize our civil liberties and, thus our democracy.
  Companies processing digital transactions have enormous power and responsibility to ensure that transactions are carried out, and people’s data is kept secure.
• Cash is universal. It does not require two parties to a transaction to have a bank account, special equipment or knowledge. Cash will be there even if IT systems stop working. It can also be used in times of extraordinary events such as natural disasters or crises. It allows purchases to be made at a time when transfers are disrupted.
  Natural disasters or wars can cause power cuts, making it impossible to make electronic payments. During Hurricane Sandy, electronic payments were not possible in several areas of New York. Residents had to walk several kilometers to withdraw cash. In the aftermath of
  Hurricane Maria in Puerto Rico, the use of cash skyrocketed as the electricity grid was down for several months.
  Many banks advise people to keep some cash in their wallets for emergency outages and to have a week’s supply of cash at home for more prolonged outages.
• Cash is portable. Banknotes and coins are essential to avoid the exclusion of vulnerable groups. These include, for example, the elderly, people on lower incomes, or those living in rural areas. It is estimated that 2 billion people worldwide are without a bank account. Many of them face difficulties providing financial security for themselves and their families. This part of the world’s population depends mainly on cash. Globally, around 200 million small and medium-sized enterprises lack access to banking services and finance.
  The main problems are poor infrastructure or geographical constraints that make providing essential services difficult or too costly. Traditional financial institutions often do not reach people living in rural areas. In addition, many people in the world for whom identification is difficult. Cash allows these people to support themselves and their families without restrictions.
• Cost control. Keeping cash in physical form has a psychological effect – spending cash is visible, giving people a better sense of how much they are spending. When you pay with a debit card, all you see at the bank terminal is the number being taken from your account.
• Cash is a store of value. Cash is not just a means of payment. It allows you to save without the risk of late payments and to make small gifts and payments. Parents can also give cash to their children to make smaller purchases, which helps improve their financial literacy. Cash can also be entrusted to a friend or acquaintance for purchases.