The United Kingdom, like many other countries, has been steadily moving towards a cashless society in recent years. The rise of digital payment methods, contactless cards, and mobile wallets has made it easier than ever for people to conduct their financial transactions without the need for physical cash. Whilst there are clear advantages to embracing a cashless economy, there are also significant drawbacks and long-term implications that must be considered.
The pros of a cashless society
Convenience: One of the most significant advantages of a cashless society is the unparalleled convenience it offers. Digital payment methods allow people to make transactions quickly and securely, whether they’re shopping online, paying bills, or splitting a restaurant bill. Contactless payments have become especially popular in the UK, making it effortless to make purchases with a simple tap of a card or smartphone.
Example: Imagine a busy commuter in London who can easily use their contactless Oyster card for public transport, pay for a coffee at a café, and purchase groceries at a supermarket, all without needing to carry cash.
Reduced crime: A cashless society can help reduce various forms of financial crime, such as theft, counterfeiting, and money laundering. With digital transactions leaving a clear and traceable electronic trail, it becomes more challenging for criminals to engage in illicit activities.
Example: By relying on digital payment methods, the UK has seen a decline in bank robberies and physical cash thefts.
Financial inclusion: Digital payments can improve financial inclusion by providing access to banking services for those who are unbanked or underbanked. Mobile banking apps and digital wallets can help people manage their finances more effectively, regardless of their geographic location.
Example: Initiatives like mobile banking vans and digital wallets have brought financial services to remote areas in Scotland, helping residents access banking services more conveniently.
The cons of a cashless society
Exclusion of vulnerable people: Whilst digital payment methods offer convenience, they can also exclude the vulnerable in society who may not have access to smartphones or bank accounts. This digital divide can further marginalise those already facing financial difficulties.
Example: Elderly individuals who are not tech-savvy or homeless people who lack access to traditional banking services may struggle to adapt to a cashless society.
Privacy concerns: The move towards digital payments raises significant privacy concerns. Every digital transaction leaves a data trail that can be exploited by governments and corporations for surveillance or marketing purposes, potentially infringing on individuals' privacy rights.
Example: Concerns have arisen about the extent to which tech giants like Google and Facebook collect and utilise personal financial data for targeted advertising.
Security risks: Despite advancements in security measures, digital transactions are not immune to cyberattacks and fraud. Phishing scams, identity theft, and hacking incidents can lead to significant financial losses for individuals and businesses.
Example: In 2020, the UK's National Cyber Security Centre reported a surge in Covid-19 related phishing attacks, demonstrating the ongoing security risks associated with digital transactions.
Long-term implications of a completely digital currency system
Monetary policy challenges: A cashless society poses challenges for central banks in implementing monetary policy. Traditional tools like adjusting interest rates may become less effective, as digital currencies can be subject to volatility driven by global financial markets.
Example: In the event of a severe economic downturn, central banks may have limited options for stimulating the economy if interest rates are already near zero.
Financial dependency on tech companies: As cash disappears, individuals and businesses become increasingly dependent on technology companies for their financial services. This concentration of power raises concerns about monopolistic practices, accountability, and access to essential financial services.
Example: Tech giants like Amazon, Apple, and Google are expanding their financial services, potentially increasing their control over the financial sector.
Loss of anonymity: A cashless society erodes the anonymity that physical cash provides. Every digital transaction can be tracked, potentially inhibiting personal freedoms and leading to a society of surveillance.
Example: In China, the widespread adoption of digital payments has been accompanied by the government's ability to monitor and control citizens' financial activities, impacting personal freedoms.
Resilience to system failures: A completely digital currency system is vulnerable to system failures, whether due to technical glitches or cyberattacks. A lack of physical cash as a backup could leave individuals and businesses stranded in the event of a widespread disruption.
Example: In June 2018, Visa experienced a widespread technical failure in the UK, leaving many unable to make digital payments for several hours.
You may not think much of those pros nor be troubled by the cons of a cashless society; however, enough people are worried about the control and loss of freedoms that could be imposed by our government if cash no longer existed.
Say you were classed as obese. To the government, you’re a potential drain on the resources of our NHS. Conspiracy theorists proffer that the powers-that-be would restrict your spending on fatty foods and unhealthy meals if the UK solely operated a digital currency.
It seems there are plenty of people who believe that cash still has merit. Cash payments rose last year for the first time in a decade, increasing by 7% to 6.4bn. On a short break to a tourist town last week, I noticed two businesses clearly stating that ONLY cash could be used on their premises. I had to read their signs twice, as I’m that used to seeing businesses state that they’re card-only enterprises, certainly after the pandemic.
I’ve read of many small businesses in the current-cost-of-living crisis that claim the fees that card companies currently charge are severely eating into their profits. Maybe they’ll also turn back to cash?
What are your thoughts? Would you like to see cash phased out?