Daily Management Review

A very expensive cashless economy


After the March 2011 earthquake and tsunami that struck the coasts of Japan, one of the most important difficulties faced by the survivors was to buy their daily groceries. Most of them had left with their credit cards and phones but those proved to be useless in a post-disaster society. A few weeks after the tragedy, an old man was asked what he would have done differently to prepare from the evacuation “I wished I had packed a decent pair of shoes, my toothbrush … and some cash” he said. Here is why a cashless society can put us all in that same situation.

It is a well known fact that you realize what’s really important when disaster struck. May it be in Japan, New Zealand or Ecuador; in a post disaster situation, where an entire region is on its knees, people realize how cash is essential to their lives. “Access to physical currency is an immediate priority in times of national emergency, even in a country where 75% of transactions are normally made with electronic payments. In fact, when electronic retail payment systems are not working, electronic payment becomes a vulnerability, not a strength”  said Alan Boaden, Head of Currency at the Reserve Bank of New Zealand after the Christchurch earthquake. ‘People are confortable with cash’ said Ecuador’s Minister of Finance after the April 2016 earthquake, ‘they trust it and it was our job to invigorate recovery by making sure they had access to it’, he added. Yet our societies seem to have engaged in a transition that would barred us from cash.
Among the many misperceptions about cash, the main one is probably the so called ‘redundancy’ of cash money. Today, despite many political moves (in several countries) to embrace the utopian cashless society, cash remains by far the most used payment instrument across the world. Even in the developed countries that we thought would have switched to electronic payments a long time ago, cash is still rising. In the UK, the Bank of England has reported this year that the value of cash in circulation has risen steadily year-on-year by about 11% for the past 20 years. The number of ATMs is still rising proof that cash and cards can go together and that a fully cashless society isn't for tomorrow.
A brutal transformation towards societies with less cash - or no cash at all - represent many risks in terms of social costs. Going cashless would be a political act before being a customer driven move. Partially, the utopia is legitimated by the desire to increase transparency, to reduce corruption or minimize the opportunities for tax evasion. One less legitimate desire is to increase the profits of those involved in digital payments.
Up to this day, non-cash payment methods are not public goods. “Cash is public money generating public revenue, while electronic money is private money generating private revenue” says Thierry Lebeaux, CEO of ESTA (1). But we have a tendency to forget that our private money, when it’s not cash, is generating private revenue and that a cashless economy could end up being very expensive.
The anti-cash movement often refers to cash as an inefficient mean of payment. Yes paper money can get dirty at times, it does age… But it’s because cash money lives a long life. Electronic or digital money doesn’t recirculate and each time you use it, it generates some kind of revenue for those involved in the transaction.
With cash, you don’t pay to buy things, transactions are free and your right to use your cash depends on you only. When coming back to the example of disaster relief, experts realized that digital money exerts no leveraging effect within local communities when cash transfers enter a ‘multiplier’ effect within the local economy, generating $2.4’s worth of additional transacting in the region.
The transition towards a cashless future could also be a social disaster. It is one more misconception that cash has very few societal and social benefits. Cash actually allows consumers to exert more control over their spending habits. If you shop only online or digitally you are likely to spend 20% to 40% more than what you’d spend with cash, according to psychological studies led in the U.S. Psychologist have put a name on that phenomenon, the ’dissociation effect’; without cash, the perception of value changes and it’s not only dangerous for your own wallet but for every consumer around the globe.
It’s the entire economy that could potentially suffer from a cashless future. Yes, consumers would be likely to spend more but it would only benefit the ‘digital and online monsters’: Amazon, Apple, Google, Facebook, all want you to get rid of your cash; digital payment industrials and banks as well. The reason is simple, in a cashless society, each and every one of your transactions could benefit them. The ‘utopian fantasy’ of a cashless world may not be for tomorrow but it is a plan shared by the major actors of today’s digital economy.
One main problem remains, it’s our inability to control the future when it comes to cash. In most of our western countries, the cashless transition seems to have started without a popular choice. Worst, it is rarely a public debate or even a topic discussed by the candidates running for offices. Yet, cash is deeply rooted in our daily lives and if we want it to continue to be so, we should start to make it a public matter.
(1) Trade association. Cash is critical to disaster response, James Sheperd-Barron, November 8th 2016.