Why the move to a cashless economy is a social (and economic) disaster

Recent years have seen a dramatic fall in cash transactions all over the world. The pandemic has accelerated this trend (despite overwhelming evidence showing that cash does not drive transmission), and the rise of cashless payment options over the last 20 years – with Google, Apple and many others now providing a plethora of alternative solutions – means that cashless transactions nearly doubled worldwide between 2014 and 2019. This trend is projected to accelerate.

The shift is facilitated by governments whose stated goal is to maximize tax revenue; however, tax compliance is often just a pretext for population surveillance. Private organizations also stand to benefit from a cashless society – banks first and foremost, as they can take a commission on purchases while making savings in handling cash – while the breathtaking amount of venture capital flowing into the financial technology (FinTech) industry ($52 billion in the first half of 2021) is testament to the profit potential and political will that underpin this trend.

Although consumers have often been willing participants in this social experiment due to the convenience of such payment methods, considering the massive political and financial incentives pushing us towards a cashless society it is worth examining the risks.

Warning signs in India and backpedaling in the West

The demonetization reform introduced by the Indian government in 2016 has failed to meet its objectives of reducing money laundering and counterfeit currency. Meanwhile, the Rupee has also become significantly weaker against US Dollar over the past five years, and the lack of cash in circulation devastated the informal economy – unable to function correctly without sufficient cash reserves – disproportionately affecting the poor with millions of people not being paid on time and having difficulty buying basic necessities.

According to the World Bank’s Global Findex Report, approximately 2 billion people worldwide are unbanked or underbanked, and as of January 2021, more than 40% of the world’s population have no access to the Internet. So this is a major issue in the Global South, but even in the USA up to 25% of people are underbanked, and this figure is significantly higher in ethnic minority populations; cashlessness therefore also poses a problem of inclusion and equity in developed societies.
After being one of the first countries with the explicit goal of transitioning to a cash-free society, Sweden is now rolling back the policy over concerns about the marginalization of certain segments of the population, despite the fact that only only around 9% of all transactions in Sweden are made with cash. Several major US cities, including Philadelphia and New York, have also recently passed by-laws banning cashless stores in part to prevent discrimination against lower-income groups, but also to prevent the theft of personal data and petty crime related to cashless payment methods.

Lower-income groups that would be the most impacted by a cashless society include the homeless and mentally disabled, people whose bank accounts do not allow unlimited transactions, as well as the elderly and those who have difficulty with technology. The generalization of cashless stores therefore risks marginalizing large swathes of the population and exacerbating social exclusion.
A 2019 report by a UK-based advocacy group showed that 17 percent of the UK’s population (over 8 million adults) would “struggle to cope in a cashless society.” The report outlines the dangers of “sleepwalking into a cashless society”, cautioning policymakers that the elimination of cash would leave millions of people behind. In countries like Greece, where the informal economy has a bigger place, and up to 75% of point of sale transactions are made in cash, it is easy to imagine that the consequences would be even worse.

Privacy and personal choice

Even the Executive Chairman of Mastercard, Ajay Banga, is on record saying that “cashless is something we are not going to get to and we probably shouldn’t”. He argues that people who feel more comfortable using cash – for whatever reason (as long as it’s legal) – should be able to.

Such concerns are not purely a question of conservatism or technophobia. Cash payments are one of the few areas in modern life where people still enjoy privacy and autonomy regarding their consumption choices. According to Israeli historian Yuval Noah Harari, the algorithms "know us better than we know ourselves”; by leveraging personal and behavioral data that we leave on multiple platforms, tech companies can manipulate us for their own gain.

Worse still, critics of surveillance capitalism fear that rather than just mining your data to sell you things you were not aware you wanted, future regimes would be able to regulate your purchases; in a world where insurance companies have access to your medical records and purchasing decisions in real time, they could feasibly block your credit card making it impossible for you to buy pizza if you have high cholesterol. Such scenarios may seem far-fetched, but in China, where cash payments are already very rare and the Chinese Communist Party is currently developing its Digital Currency Electronic Payment (DCEP) system, they may not be too far away. A cashless economy would make it impossible to opt out of this paradigm.

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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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