A cashless society describes an economic state whereby financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital information (usually an electronic representation of money) between the transacting parties. Cashless societies have existed from the time when human society came into existence, based on barter and other methods of exchange, and cashless transactions have also become possible in modern times using digital currencies such as bitcoin. However this article discusses and focuses on the term "cashless society" in the sense of a move towards, and implications of, a society where cash is replaced by its digital equivalent - in other words, legal tender (money) exists, is recorded, and is exchanged only in electronic digital form.
Such a concept has been discussed widely, particularly because the world is experiencing a rapid and increasing use of digital methods of recording, managing, and exchanging money in commerce, investment and daily life in many parts of the world, and transactions which would historically have been undertaken with cash are often now undertaken electronically. Some countries now set limits on transactions and transaction values for which non-electronic payment may be legally used.
The trend towards use of non-cash transactions and settlement began in daily life during the 1990s, when electronic banking became popular. By the 2010s digital payment methods were widespread in many countries,[which?] with examples including intermediaries such as PayPal, digital wallet systems operated by companies like Apple, contactless and NFC payments by electronic card or smartphone, and electronic bills and banking, all in widespread use. By the 2010s cash had become actively disfavored in some kinds of transaction which would historically have been very ordinary to pay with physical tender, and larger cash amounts were in some situations treated with suspicion, due to its versatility and ease of use in money laundering and financing of terrorism, and actively prohibited by some suppliers and retailers, to the point of coining the expression of a "war on cash". By 2016 in the United Kingdom it was reported that 1 in 7 people no longer carries or uses cash. The 2016 United States User Consumer Survey Study claims that 75% of respondents preferred a credit or debit card as their payment method while only 11% of respondents preferred cash. Since the founding of both companies in 2009, digital payments can now be made by methods such as Venmo and Square. Venmo allows individuals to make direct payments to other individuals without having cash accessible. Square is an innovation that allows primarily small businesses to receive payments from their clients.
By 2016, only about 2% of the value transacted in Sweden was by cash, and only about 20% of retail transactions were in cash. Fewer than half of bank branches in the country conducted cash transactions. The move away from cash is attributed to banks convincing employers to use direct deposit in the 1960s, banks charging for checks starting in the 1990s, banks launching the convenient Swish smartphone-to-phone payment system in 2012, and the launch of iZettle for small merchants to accept credit cards in 2011.
A common measure of how close to a "cashless society" a country is becoming is some measure of the number of cashless payments or person to person transactions are done in that country. For instance the Nordic countries conduct more cashless transactions than most Europeans. Levels of cash in circulation can widely differ among two countries with similar measure of cashless transactions. For example, Denmark has more than double the amount of cash in circulation as Sweden and a considerably higher percent in the largest denomination banknote, the 1000kr bill.
Across the 33 countries covered in the European Payment Cards Yearbook 2015-16, the average number of card payments per capita per year is 88.4. In comparison, the average Dane makes 268.6 card payments each year, the average Finn 243.6, the average Icelander 375.5, the average Norwegian 353.7 and the average Swede 270.2. This makes card payments in the Nordics two-and a-half to four times higher than the European average.— Euromonitor International
Amount of cash in circulationEdit
Even though a cashless society is widely discussed, most countries are increasing their currency supply. Exceptions are South Africa whose supply of banknotes fluctuates wildly compared to most nations, and Sweden which has significantly reduced its currency supply since 2007.
South Korea decided to end coins as legal tender by 2020, at which point cash change will be available only in multiples of the smallest banknote, which is ₩1000, or slightly less than US$1.
|Hong Kong SAR||6.0%||37,962||42,063||47,110||48,649||50,763|
Advantages of a cashless societyEdit
Reduced business risks and costsEdit
Cashless payments eliminate several risks, including counterfeit money (though stolen cards are still a risk), theft of cash by employees, and burglary or robbery of cash. The costs of physical security, physically processing cash (withdrawing from the bank, transporting, counting) are also reduced once a business goes completely cashless, as is the risk that the business will not have enough cash on hand to make change.
Reduction in criminal activity by eliminating high-denomination notesEdit
One significant societal advantage cited by proponents is the difficulty of money laundering, tax evasion, performing illegal transactions, and funding illegal activity in a cashless society, Many countries have regulated, restricted, or banned private digital currencies such as Bitcoin, partly to prevent illegal transactions. Large amounts of value can also be stored in real estate, antiques, or commodities like diamonds, gold, silver, and platinum.
Some have proposed a "reduced cash" system, where small bills and coins are available for anonymous, everyday transactions, but high-denomination notes are eliminated. This would make the amount of cash needed to move large amounts of value physically awkward and easier to detect. Large notes are also the most valuable to counterfeit. The United Kingdom declared only banknotes of 5 pounds or less were legal tender after World War II because of fear of Nazi counterfeiting. In 1969, the federal government of the United States declared that banknotes of value over $100 would remain legal tender, but any notes in government hands would be destroyed and that no new notes of those denominations would be printed in the future. Such notes were last printed in the USA in 1945. Canada did the same thing with the CAD$1000 banknote in the year 2000. Sweden printed 10,000kr banknotes in 1939 and 1958, but declared them invalid after 31 December 1991. Singapore has recently announced that they would no longer produce the SGD$10,000 banknote. The European Central Bank has announced that the €500 denomination banknote would not be included in the next series of euro banknotes.
Better collection of economic dataEdit
Rather than conducting costly and periodic surveys and sampling of real-world transactions, real data collected on citizen’s spending can assist in devising and implementing policies that are deduced from actual data. With recorded financial transactions, government can better track the movement of the money through financial records which enables them to track the black money and illegal transactions taking place in the country.
Easier consumer budgetingEdit
As digital payments are made, transactions are kept in records. Cashless payments facilitate the tracking of spending expenditure and record the movement of money. Having recorded transactions, it can help citizens to refine their budget more efficiently.
In a digitized economy, payment made will be traceable. With traceable transactions, institutions would have potential access to this information. With these digital traces left behind, digital transactions become vulnerable. Such transactions allow businesses a way to build a consumer’s personal profiles based on their spending patterns. The issue of data mining also come into place as countries head towards a cashless society. Cashless transactions leave a record in the database of the company as one make payment, and this information becomes a way for prediction of future events. Through large number of records, data mining then allows the organization to compile a profile of an individual through its' records in the database.
Going all-digital, these data retrieved from transactions lead to widespread surveillance where individuals can be tracked by both corporations and the government. These records might also be available to hackers and could be made public after a data breach.
Problems for the unbankedEdit
Cashless systems can be problematic for people who currently rely on cash, who are concentrated in certain populations such as the poor, near poor, elderly, undocumented immigrants, and youth. Electronic transactions require a bank account and some familiarity with the payment system. Many people in impoverished areas are underbanked or unbanked. In the United States, almost one-third of the population lacked the full range of basic financial services. According to FDIC data, of households that earn an annual income of less than $15,000 per year, almost 25.6% do not have a bank account. Nationwide, 7.7% of people in United States do not have bank accounts, with levels over 20% in some cities and rural counties, and over 40% in some census tracts.
As part of its Smart Nation initiative, Singapore has been moving towards a cashless economy. 14.4% of the country's population is over 65 years old, and the majority of seniors still use cash as their only mode of payment. Not used to digitized payment methods, troubleshooting issues such as managing lost cards or passwords and managing their expenses can create potential trouble for anyone transitioning from cash.
Security breaches and outagesEdit
When payment transactions are stored in servers, it increases the risks of unauthorized breaches by hackers. Financial cyber attacks and digital crime also form a greater risks when going cashless. Many companies already suffer data breaches, including of payment systems. Electronic accounts are vulnerable to unauthorized access and transfer of funds to another account or unauthorized purchases.
Attacks on or accidental outages of telecommunication infrastructure also prevents electronic payments from working, unlike cash transactions which can continue with minimal infrastructure.
Opponents point out that an entirely cashless system, in addition to tracking all transactions, would enable a central government to:
- Enforce a transaction tax on every person-to-person payment
- Eliminate storage of cash as a means to escape nominal negative interest rates, which are used to fight deflation by discouraging savings (most effective if combined with bans on barter, private currencies like Bitcoin, and storage of precious metals like gold). Certain types of money could be set to "expire" and be worthless if not spent in specific ways or by specific times. This is also possible with cash, if the government allows high inflation or lets its currency undergo a devaluation.
- Totalitarian regimes could conduct more effective mass surveillance and quickly prevent certain individuals from buying anything or earning any money.
- Restrict the type of consumer goods that can be purchased with a certain amount of money (and parents might be able to do the same with allowance money)
Consumers are less aware about the amount of money they are spending day-to-day when swiping their card to complete a transaction than if they budgeted money into a wallet and paid in cash.
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