What’s trending now
Cash is an endangered species. Just as paper money and bank notes replaced gold coins, so is paper money now being replaced by purely digital transactions.
Although digital banking and digital currencies such as Bitcoin are nothing new, the pace with which physical currency is disappearing from the market is gaining momentum. This global transition from physical money to digital currency poses a new set of opportunities and threats for individuals, businesses and entire economies.
Why it is important
First-world countries have led the transition to a cash-free society.
In emerging market economies, including China, South Africa and India, more than 90% of payments are still cash-based; while in first world markets, such the USA, Australia and United Kingdom, around half of all transactions are now non-cash based.
Nordic and Scandinavian countries are even further ahead. Scandinavians currently rely on cash for less than six per cent of all payments made in their country. Denmark aims to be the first completely cashless country, as early as 2017. The Danish government has given formal support to retailers to refuse cash payments for essential services, such as petrol and groceries.
Sweden and Norway also have plans in place to abandon paper currency altogether in the near future.
More significantly, since 2008 we have seen a market rise in countries and banks across the world limiting the size and amount of cash transactions; effectively forcing their populations to move away from cash as currency.
- Spain has had an imposed €2,500 limit on cash transactions since 2012.
- France has a cash transaction limit of €1,000. French police are mandated to search commuters and have the power to seize cash from anyone carrying more than the limit.
- In Greece any bill over €70 will soon only be legally payable by cheque or credit card.
- JP Morgan Chase — the world’s biggest bank — has banned cash payments for credit cards, mortgage bonds and car loans. The bank also does not allow the storage of any cash or coin’ in its safe-deposit boxes.
- Zimbabwe, after the country’s banks and ATMs ran out of cash on the 5th of May 2016, imposed a $1,000 limit on cash withdrawals and cash transfers outside the country.
- On the 8th of November 2016, India’s Prime Minister declared all 500 and 1,000 rupee notes would cease to be legal tender within four hours. With that one statement, 23 billion notes, accounting for 80% of the country’s cash, suddenly became worthless.
Locally, although South Africa is far away from a completely cashless environment, we have seen the rise of mobile QR code app-based payment services such as SnapScan (which has over 25,000 registered vendors) rolling out across formerly cash-based and informal trading environments, which include flea-markets and concerts. We have also seen how quickly, thanks to our almost complete mobile penetration, Blockchain technology, such as Bitcoin, has taken off across all strata of our economy. These are signs that South Africa’s transition to a cashless environment could happen very quickly when it does.
The butterfly effect
A world without cash appears to be a good idea on the surface. Electronic transactions are faster, cheaper, more convenient (and theoretically at least) more secure and more traceable than cash.
However, a purely electronic economy is not without risk. To start with, a cyber attack, or even just a short term disruption to Internet connectivity on a purely digital economy could be devastating. Digital currencies are also vulnerable manipulation by unscrupulous governments and banking oligarchies.
For example, if all money is electronic, governments and banks could implement zero or even negative interest rates in an attempt to force spending to boost the economy. This has happened in Sweden in the past. In a negative interest rate environment, savers and investors are forced to either spend or lose their money. This is a particularly big risk to pensioners and others who rely on savings or investment income for their livelihoods.
As cash declines, we should expect an increase in government regulation and observation of digital transactions, both through registered banks and as yet unregistered cryptocurrency platforms.
Most interesting to observe in a cash-free future will be the growth of non-nation specific currencies. Bitcoin and Blockchain technology have only just begun to explore their potential. We could very well find that the biggest economies of the future are Internet, not country-based. Individual currencies may very well become as irrelevant as cash in the future.
Across the globe, both big and small businesses have seen the future and are phasing cash out of their tills.
In 2016, both Waitrose and Tesco in the UK experimented with cash-free retail outlets; while
Barclays UK developed a wristband that wearers can tap on till readers and public transport scanners to pay for goods and services.
On the other side of the world, Pablo & Rusty’s Coffee Roasters in Brisbane does not accept cash as tender, although they do allow patrons to pay by swiping smart-chip enabled, reusable, Frank Green coffee cups, or via card or cell phone as a more traditional alternative.
By: Bronwyn Williams