As technology continues to advance, the idea of a cashless society has become more prevalent. In a cashless society, transactions are conducted using only digital forms of payment, such as credit cards, debit cards and mobile payments. While the idea of a cashless society has its advantages, it is important to consider the potential impact on the economy.
Increased efficiency
Digital transactions can be processed more quickly and easily than cash transactions. With digital payments, there is no need for counting cash, making change or physically transporting cash to the bank. This could save time and money for businesses and individuals, and could also lead to shorter lines and faster checkouts at stores, which could be a big plus for customers.
Reduced crime
Cash is often used in illegal activities such as money laundering and tax evasion. A cashless society could make it harder for criminals to conceal their activities, as all transactions would be recorded digitally, which would make it easier for law enforcement to track and trace illegal activities. Additionally, criminals would have a harder time physically transporting and hiding large amounts of cash.
Impact on small businesses
One of the primary concerns about a cashless society is the potential impact on small businesses. Many small businesses, particularly those in low-income areas, may struggle to adapt to a cashless economy. These businesses may not have the resources to invest in the technology necessary to accept digital forms of payment, which could put them at a disadvantage.
Additionally, a cashless society could exacerbate the issue of the "digital divide”, where low-income individuals and communities may not have access to the technology needed to participate in a cashless economy. There are concerns that this is already under way in certain countries, with a recent report stating a cashless society could already be happening in the UK.
Implications for monetary policy
Another potential impact of a cashless society is the implications for monetary policy. Monetary policy is all about how the government uses interest rates, the money supply and other tools to control the economy. One of the main concerns is that a cashless society would make it harder for the government to control the money supply. For example, if there's less cash in circulation, the government would have a harder time controlling inflation. That's because inflation is often caused by too much money chasing too few goods. If there's less cash around, it's harder for that to happen.
If you have questions about inflation or find yourself asking what is deflation or anything else related to monetary policy, reading up from trusted sources can help. You’ll also be able to understand how a cashless society could impact financial mechanisms if cashless ever becomes an actual policy.
Potential for financial inclusion
While a cashless society may present challenges, it also has the potential to improve financial inclusion. Financial inclusion is all about making sure that everyone has access to the financial services they need. A cashless society could help with that by making it easier for people to access digital forms of payment, even in areas where traditional banking infrastructure is lacking.
Risks to cybersecurity
As more transactions are conducted digitally, there is a greater risk of cyber-attacks and data breaches. For example, hackers could potentially steal personal information, such as credit card numbers, or disrupt financial systems. This could cause financial losses for individuals and businesses.
Concerns around emergency funds
Cash is a tangible asset that can be used in times of emergency. Without cash, people might not have access to emergency funds as quickly or easily. For example, if a natural disaster strikes and power is out, people might not be able to access their digital funds if they don't have a way to charge their devices or if the internet is down. Similarly, if the financial system is disrupted, people might not be able to access their digital funds, even if their devices are working.
This could make it harder for people to access emergency funds, which could be a problem in times of crisis. To mitigate these risks, individuals need to have a backup plan, such as having some cash on hand or having multiple ways to access their digital funds. This has been a concern around currencies such as Bitcoin but as more and more people use cryptocurrencies, these concerns are not as widespread as they once were.
The idea of a cashless society brings both challenges and opportunities for the economy. While it may present challenges for small businesses and implications for monetary policy, it remains to be seen whether a cashless society comes to fruition and what the true impact may be.