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A Cashless World

News Story

Do you carry cash? Is paper money becoming a thing of the past? PACEspectives discusses.

No cash in your wallet? That's increasingly less of a problem, particularly in major cities. With the rise of money sharing apps, pay-with-your-phone initiatives, and an increasing number of establishments that don't accept paper money, cash may be surrendering its royal crown. We asked members of the Pace Community to weigh in for this month's edition of PACEspectives: 

Todd Yarbrough, PhD
Clinical Professor, Economics
Dyson College of Arts and Sciences 

The advent of electronic banking, specifically ATMs, increased the liquidity of anyone with a checking and/or savings account. Cash money could be accessed quicker and easier, which meant that the need to carry cash was diminished. Further innovations in electronic banking such as direct deposit, debit/check cards, and mobile banking have eroded not just the need to hold cash or personal checks, but also the need to use cash or checks at all.

There are large economic benefits to a cashless society. Transactions, the lifeblood of markets, occur more efficiently and probably more often than an economic market requiring cash. Banking consumers have more freedom and options with respect to their banking needs, and they can avoid carrying large sums of cash or a checkbook with them when they go shopping. Moreover, people are able to send and receive money much more efficiently. Generally speaking, the move towards a cashless society is likely good for the economy by lubricating the movement of money about the economy.

Potential downsides to cashless society exist as well. Having banking accounts represented by digital ledgers opens up the potential for cyber-criminal activity, requiring banks and even consumers to invest in identity and cash theft prevention services. Although this is not unlike security measures taken when cash was more prevalent. Additionally, issues could arise if banking servers were interrupted preventing people from accessing their funds, but then again traditional banks weren’t open 24 hours a day either.

Perhaps as concerning as security issues is the potential psychological effect of a cashless society, which some researchers believe increases overspending and impulse purchases. Others even worry that cashless transactions erode the substance of markets by reducing the need for human interaction. However, it will be years into the future before we have any real evidence of the potential negative consequences of a cashless economic market.

Lastly, a cashless society taken to its extreme, a world where businesses don’t accept cash, would necessarily be biased against those who for one reason or another don’t have banking accounts. According to the US Census Bureau, 8% of all households in America do not have checking accounts, with the majority of these households represented by marginalized populations. If cash acceptance were reduced in a cashless world, these households would find it very difficult to transact, making a cashless society a potential class issue.

Christian Halstead '20
Philosophy and Religious Studies, Economics 
Dyson College of Arts and Sciences

2018 Federal Reserve Challenge Team Member

As a student primarily of post-structural philosophy, I find the current tendency towards the digital abstraction of economic value rather unsurprising. This school of thought can be generally characterized by its emphasis on the tendency in societies towards fluidity, accelerating “flows of desire,” and a greater inertia of relationality, particularly in an economic sense, all the more so in the context of capitalism. In brief, one could say that the increasing abstraction of capital away from its physical form (money) and into its virtual, digital sphere allows for precisely this accelerated relational potential, the ability for capital to move more freely and more quickly leading to increases in economic capabilities.

Gilles Deleuze and Félix Guattari in Anti-Oedipus: Capitalism and Schizophrenia (1970) articulate the dualism of capital into money and its digital counterpart as it is said, “In credit money, which comprises all the commercial and bank credits, purely commercial credit has its roots in simple circulation where money develops as means of payment (bills of exchange falling due on a certain date, which constitute a monetary form of finite debt). Inversely, bank credit effects a demontetization or dematerialization of money, and is based on the circulation of drafts instead of the circulation of money” (229). As capitalist production has developed, clearly the latter form has taken center stage. Globalization necessitates the abstract movement of capital more so than ever. Digitization and digital exchange too demand that we move capital in an increasingly non-localizable and, thus, immaterial manner.

In brief, the easier we can move our capital, the more money we can make. It’s one of the most fundamental characteristics of contemporary economy, and possibly of society in general. It is for this reason that capital is pushed further towards the free-flowing abstraction of a cashless world.

Farrokh Hormozi, PhD
Professor Emeritus, Economics, History, and Political Science
Dyson College of Arts and Sciences 

Use of cash backed by precious metal was the way to complete a transaction in most of human history. Today only 8% of business activities are cash-based in the United States, while in Norway, it is 2% and in the Eurozone it stands at 10%. Globally, since 2010, use of non-cash transactions have increased three-fold from less than $270 billion to more than $750 billion. More and more economies are moving in the direction of "cashlessness." Modi of India is pushing hard to adopt cashlessness to prevent fraud in India, and Sweden is almost there.

What is cash, anyway? To be brief, cash is an instrument to complete a financial transaction. Financial transactions are daily activities between buyers and sellers of a society. We work to make money to pay for rent and mortgage, buy food and pay for transportation, leisure activities, health care, and so on. To complete a transaction, a buyer needs to have a financial instrument to pay for it; money is that instrument (I remember an old professor of mine saying money is a funny instrument, it gives you pleasure when it departs you). Once upon a time, money was the only instrument to complete a transaction. Although, even then, noncash transactions, such as accounting for depreciation and amortization, we still relied on cash to complete a transaction. Then financial institutions created credit cards that reduced reliance on cash. However, use of credit cards was limited and restricted. Technological advancement worked well to reduce those limitations and made reliance on cash settlements less and less important. In recent years, as we always did, we work to make money to spend for our daily pleasures and necessities. However, we hardly need cash or any available currency to do so. In fact, we hardly need to touch any of those instruments. Money is deposited to our checking account, various expenses are automatically paid by our pre-specified instructions, we use credit card or debit card, or our smart phone, to pay for our daily transactions and rarely need cash to carry.

We may be far behind, but judging the size of the global non-cash transactions, and involvement of participating institutions in addition to financial ones, we are moving rapidly. Recently, the industry leader in these kinds of payments is Google, which has introduced Google Wallet. It is likely that Visa will soon enter this market as well. However, such a move has become controversial. A cashless society depends upon a safe and reliable power structure, as well as a reliable and available WiFi system. (What about the hackers?) More so, what happens to the poor segment of the population (close to 10% in the United States) who have no bank account or proper credit to acquire these non-cash instruments? Would they be charged a significantly high interest rate that makes them even poorer? What about the amount of personal information gathered or produced by using non-cash instruments? By turning everything into a digital transaction, banks are guaranteed the ability to make huge amounts of money on fees. They will be taking a cut on everything that moves in and out of their hands, which means everything. Of course, this argument is countered by claiming that not having cash around helps to “protect” people from random robberies. However, if such robbery happens digitally, the target is the entire credit of the victim and not a few dollars in his or her pocket.

Problems with such a system abound, but we are moving rapidly towards it, believe it or not.