Going Cashless Does Not Facilitate Economic Recovery

Nick Youngsone
Nick Youngsone
One can be forgiven for presuming that the devastating economic consequences of the COVID-19 pandemic would accelerate moves towards cashless societies around the globe. The reality has been far more nuanced. In some countries, the pandemic has had the opposite effect, exposing cash transactions as a crucial part of people’s daily economic lives, further highlighting how cashless systems end up ostracizing and destabilizing certain sections of society.
What is certain is that the pandemic encouraged a worldwide increase in demand for hard cash, as fears about financial insecurity and economic instability led many to return to banknotes as a safeguard against economic ruin. This ‘dash for cash ’ has led to consumers sitting on trillions in unspent savings. Will this be the key to economic salvation? It has certainly necessitated a serious discussion about the suitability of cashless systems in times of economic crises.
Cash and Economic Recovery in India
For many, cashless systems impede rather than encourage economic recovery in times of crisis. It is estimated that 1.7 billion people globally remain unbanked, ie. without access to a financial institution or mobile money provider. This figure was 2 billion in 2014. The majority of these individuals reside in developing countries, where the development of financial structures lags far behind more modern economies in the West, and where communities rely on cash as they have done for decades. China and India also harbour a large share of the world’s unbanked, if only due to their sheer size and population.
In India, even the banked population has been affected by the global ‘dash for cash’ during the pandemic. The Reserve Bank of India estimated that there was around ₹27.9 trillion in circulation in April 2021. For the previous fiscal year 2020, the RBI stated in its annual report that The demand for currency started to increase in the wake of heightened uncertainty caused by COVID-19 pandemic. The Reserve Bank took a series of measures in order to meet the enhanced demand. In addition, note printing presses, paper mills and banks were also directed to put in place a business continuity plan/contingency plan to avoid any disruption in continuous supply of currency.” Recovering from the economic trauma of the pandemic must surely then depend on Indians’ inclination to spend this cash.
This return to cash for vital day-to-day transactional activities, however, goes somewhat against India’s ostensible slide towards a cashless society, as encouraged by the government of Narendra Modi, whose sudden demonetization of certain banknotes back in 2016 suggested an acceleration away from cash. Indeed, 79% of Indians believe going cashless would have a positive effect on society.
The pandemic, however, has once again managed to unsettle global trends and disrupt prevailing norms. The sudden arrival of the Delta variant in India in early 2021 and the devastation it caused across the county meant a sudden reliance on black market purchases in life or death situations. Oxygen cylinders and concentrators and various drugs began selling for a premium price, all paid for by the hordes of cash hidden away by anxious consumers specifically for such an eventuality.
Why We Need Cash for Economic Salvation
India is not the only economy sitting on large amounts of cash following widespread uncertainly due to the pandemic, nor is it the only economic whose efforts to move towards a more cashless society have proved somewhat debilitating for certain sections of society (think Venezuela). The Economist carried out a study on personal saving during the pandemic across 21 wealthy countries, concluding that consumers saved $6 trillion in the first 9 months of 2020, double what would be typically expected in pre-pandemic times.
But what does this mean for our global economic recovery once we have finally beaten COVID-19 for good? Well, to put it simply, all the cash saved during the pandemic needs to be spent. The eventual lifting of all lockdown rules should encourage people to go out and enjoy themselves, in restaurants, cinemas sports venues and shopping centers. The Bank of England believes that Britons will go on a £50 billion spending spree once all restrictions are lifted.
Businesses in all sectors would do well to remember the value of cash for kickstarting our struggling economies. The less affluent, working class demographic are the ones that will bear the brunt of an economic reboot, working with a view to consuming. Facilitating access to cash, particularly among more these sections of society, can only be a positive approach in a world in desperate need of a boost. Trust in cash is key. Cashless societies would hinder recovery across the board; ever heard of the digital divide ? Financial exclusion would slow down growth, at a time when we all need it to speed up. The best way out of this mess is by coming together for the communal cause of encouraging an economic reboot. Maybe we should put the cashless question on the back burner for a while…

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The cashless society from an ethical point of view

The debate about the move towards a cashless society has been at the center of the scene for several years, now. Various angles have been taken by economists, politicians, banking institutions and sociologists. Beyond the technicalities of the debate, lies the question of freedom, of inter-citizen solidarity and of governmental responsibility. The debate cannot remain in the hands of financial specialists, it is first and foremost an ethical, political and societal issue.

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