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