Sweden is on track to becoming the world’s first cashless society in 2023. About 80% of Swedes use a debit or credit card to make purchases (Sweden.se, 2019). A cashless society can be defined as the absence of physical cash such as notes and coins, whilst digital payments gain the upper hand (Dictionary.com, 2019). One factor that certainly is relevant, is the population of Sweden. With an estimated population of 10,040,995 in 2018 (CIA World Factbook, 2018), one may argue that it is easier for Sweden to become cashless than other countries with significantly larger populations. Nevertheless, the impact that a full cashless society has is considerable.
Aside from the intuitive factors that a cashless society is considered more convenient and transparent, but also more prone to hacking, there are other relevant factors.
The Boston Consulting Group (2019) estimates that a cashless society would increase annual GDPs of developing economies by 3 percentage points and developed economies by 1 percentage point. This is due to the increased velocity of transactions and the increased transparency (BCG, 2019).
Theoretically, a cashless society would also have a positive impact on the government, through increased tax surveillance (Berentsen and Schaer, 2016). Transactions via transfers are more easily traceable and executing cash-in-hand-jobs becomes more difficult. Ideally, this would have positive spill over effects of higher tax returns and reduced national debt and more financially stable economies (Berentsen and Schaer, 2016). This does not account for market imperfections though. Illegal activity, such as tax evasion, will most likely continue, as alternative forms of payment emerge, either reversing back to payments in the form of commodities like gold or through cryptocurrencies and offshore accounts (Berentsen and Schaer, 2016).
Additionally, cash is the only barrier to the elimination of the zero-lower bound of nominal interest rates (Buiter, 2016). As soon as people need to pay for keeping their money on a savings account, it will be cheaper for people to withdraw it all and store it elsewhere in cash. This makes it ineffective to have negative interest rates, without a prior ban of cash (BCG, 2019).
Considering that the Netherlands has also limited the locations where you can pay with cash, do you believe the outlook on a cashless society is positive or negative?
Sources:
Berentsen, A. and Schaer, F. (2016). The fallacy of a cashless society. In Beer C., Gnan E., and UW Birchler (Hg.), Cash on Trial, SUERF Conference Proceedings (Vol. 1, pp. 14-19).
Boston Consulting Group (BCG) (2019). How Cashless Payments Help Economies Grow. [online] Available at: https://www.bcg.com/en-nl/publications/2019/cashless-payments-help-economies-grow.aspx [Accessed 18 Oct. 2019].
Buiter, W. (2019). Toward the brave new world of negative rates and a cashless society. [online] Available at: http://asia.nikkei.com/ Viewpoints-archive/Viewpoints/Willem-Buiter-Toward-the-brave-new-world-of-negative-rates-and-a-cashless-society [Accessed 15 Oct. 2019].
Cia.gov. (2019). Europe: Sweden — The World Factbook – Central Intelligence Agency. [online] Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/sw.html [Accessed 17 Oct. 2019].
dictionary.com. (2019). Definition of cashless society | Dictionary.com. [online] Available at: https://www.dictionary.com/browse/cashless-society [Accessed 16 Oct. 2019].
sweden.se. (2019). Sweden – the first cashless society?. [online] Available at: https://sweden.se/business/cashless-society/ [Accessed 16 Oct. 2019].
Photo credits to:
morningadvertiser.co.uk. (2019). Is it time pubs ditched cash?. [online] Available at: https://www.morningadvertiser.co.uk/Article/2018/10/08/Spotlight-is-cash-still-king [Accessed 18 Oct. 2019].
It seems to me that there is a big potential of a cashless society in the Netherlands. Recently, I have even seen a person paying through the mobile scan app rather than the card. With the contactless payment it comes even more appealing to people who do grocery or relative smaller payments as people are seeking faster ways to finalized their transaction at the cash desk. However, I have also seen some locations in the Netherlands that do not accept any means of cashless payments. The cash payments are relatively to be realized more with the older generation rather than millenials. So, in the short term this is not yet possible to fully move to the cashless payment system but who knows what is going to happen in 50 years?
Hi Celina, very interesting topic and with talks about completely eliminating cash very up-to-date. Even in the Netherlands (at least for arriva busses) you cannot even pay with cash or a debit-, but only a credit card. With abandoning 500€ and 200€ bills in Germany, the trend is clear. However, according to Forbes (2018), research found that using credit cards makes us spend even more money due to two reasons. 1) It is easier to spend more because you feel like you have an unlimited amount of money at hand and (2) you do not really feel like spending money because the amount doesn’t immediately get deducted from your balance. Personally, I think it is super convenient but now even more important that we learn how to take care of our money.
https://www.forbes.com/sites/billhardekopf/2018/07/16/do-people-really-spend-more-with-credit-cards/#3ac104921c19
In my opinion it’s definitely positive in many ways. Besides the fact that it increases efficiency – I mean I love walking in and out of a supermarket without having to take out my wallet – increases tax surveillance, and increases annual GDPs, I think cashless payments will solve many more issues. Consider drug trafficking right? It’s an ‘all-cash’ business where not a single transaction is made, and traffickers often ‘hide’ their huge amounts of money by buying real estate, restaurants, expensive cars, and what not. This is all so much easier when paying cash, also because it is not traceable. Once we start living in a cashless environment, where even withdrawing cash from an ATM becomes impossible, drug traffickers in my opinion will experience a very difficult and overwhelming experience. I believe it’s important to look beyond what benefits a cashless society would introduce on a personal/individual level, and really consider the social issues it can tackle. Based on that, it is rather clear to me that the urgency to introduce a cashless society becomes higher.
Hi Celina!
I definitely agree with the positive sides you are mentioning of a cashless society. Cash does not have much use now we can pay almost everything, everywhere by card.
Hi Celina! Thank you for your interesting post. In my opinion, cashless payments will be a very important and interesting development over the years to come. The increasing amount of banks and devices allowing mobile payments will be an crucial factor in this. This way, people only need to carry their phone when going out, instead of both their phone and wallet. Not only does this save space and makes transactions more efficient, it will also give you a safe feeling, as you don’t have to walk around with a lot of cash in your pocket. The same goes for companies, it will drastically decrease i.e. supermarket robberies, as there won’t be any cash at these places. Going cashless does, however, ask for increased online security. People with bad intentions will move their efforts from the physical to the digital environment. It is crucial that people are fully aware of the ever mproving skills of scammers and hackers. Only this way going cashless will be a success.
Nice article! You bring up some great points about the benefits of a cashless society. To me, the most obvious benefits concern better financial controlling and rendering the financial transactions from illegal activities more difficult. I do wonder however, if the transition from cash to cashless can be realistically implemented in all countries.