The Pros and Cons of a Cashless Society (2024)

A cashless society might sound like something out of science fiction, but it's on its way. Many present-day financial practices and transactions already happen without cash, and many financial institutions, service companies, and even governments are proponents of the shift.

On one hand, transitioning to a cashless system can reduce crime rates, streamline financial transactions, and simplify international payments. On the other hand, it raises concerns about privacy, cybersecurity risks, technological dependency, economic inequality, and the potential for increased overspending. As a result, countries attempting to go cash-free have had varying levels of success.

Key Takeaways

  • Many countries are moving toward a cashless society, in which all financial transactions are electronic.
  • In addition to simply eliminating the costs and hassles of managing currency, going cashless may also reduce certain types of crime.
  • The downsides of going cashless include less privacy, greater exposure to hacking, technological dependency, magnifying economic inequality, and more.
  • Credit and debit cards, electronic payment apps, mobile payment services, and virtual currencies in use today could pave the way to a fully cashless society.

What Is a Cashless Society?

A cashless society is one where cash—paper and coin currency—isn't used for financial transactions. Instead, all transactions are electronic, using debit or credit cards or payment services like PayPal, Zelle, Venmo, and Apple Pay. Many countries are moving in this direction, but it's difficult to tell which ones will eliminate cash altogether.

In addition to logistical challenges, several social issues need to be addressed before a society can give up on cash entirely.

The benefits and disadvantages below can give you an idea of the myriad of effects going cashless can have on money and banking as you know it.

Benefits

Disadvantages

  • Exposes your personal information to a possible data breach

  • No alternative source of money in the case of technical issues or hacker activity

  • Technological learning curve

  • Lack of control over spending without a physical reminder

Benefits of a Cashless Society

Those with the technological ability to take advantage of a cashless society will likely find that it's more convenient. As long as you have your card or phone, you have instantaneous access to all your cash holdings. Convenience isn't the only benefit. Here are some other benefits.

Lower Crime Rates

Carrying cash makes you an easy target for criminals. Once the money is taken from your wallet and put into a criminal's wallet, it'll be difficult to track that cash or prove it's yours. One study by American and German researchers found that crime in Missouri dropped by 9.8% as the state replaced cash welfare benefits with Electronic Benefit Transfer (EBT) cards.

Automatic Paper Trails

Similarly, financial crime should also dry up in a cashless society. Illegal transactions, such as illegal gambling or drug operations, typically use cash so that there isn't a record of the transaction and the money is easier to launder. Money laundering becomes much harder if the source of funds is always clearly identifiable. It is harder to hide income and evade taxes when there's a record of every payment you receive.

Cash Management Costs Money

Going cashless isn't just convenient. It costs money to print bills and mint coins. Businesses need to store the money, get more when they run out, deposit cash when they have too much on hand, and in some cases, hire companies to transport cash safely. Banks hire large security teams to protect branches against physical bank robberies. Spending time and resources moving money around and protecting large sums of cash could become a thing of the past in a cashless future.

International Payments Become Much Easier

When you travel, you may need to exchange your dollars for local currency. However, if you're traveling in a country that accepts cashless transactions, you don't need to worry about how much of the local currency you'll need to withdraw. Instead, your mobile device handles everything for you.

Disadvantages of a Cash-Free World

Depending on your perspective, going cashless might be more problematic than beneficial. Here are some of the major downsides associated with a cashless financial system.

Digital Transactions Sacrifice Privacy

Electronic payments aren't as private as cash payments. You might trust the organizations that handle your data, and you might have nothing to hide. However, the more information you have floating around online, the more likely it is to wind up in malicious hands. Cash allows you to spend money and receive funds anonymously.

Cashless Transactions Are Exposed to Hacking Risks

Hackers are the bank robbers and muggers of the electronic world. In a cashless society, you're more exposed to hackers. If you are targeted and somebody drains your account, you may not have any alternative ways to spend money. Even if you're protected under federal law, it will still be inconvenient to restore your financial standing after a breach.

Technology Problems Could Impact Your Access to Funds

Glitches, outages, and innocent mistakes can also cause problems, leaving you unable to buy things when you need to. Likewise, merchants have no way to accept payments when systems malfunction. Even something as simple as a dead phone battery could leave you "penniless," in a sense.

Economic Inequality Could Become Exacerbated

Unless special outreach efforts are made, the poor and unbanked will likely have an even harder time in a cashless society. If smartphone purchases become the standard way to transact, for example, those who can't afford smartphones will be left behind. The UK is experimenting with contactless ways to donate to charities and homeless individuals, but these efforts may not be developed enough yet to substitute cash donations.

Payment Providers Could Charge Fees

If society is forced to choose from just a few payment methods, or if one app becomes the standard payment app, the companies who develop these services might not offer them for free. Payment processors may cash in on the high volumes by imposing fees, which would eliminate the savings that should come from less cash handling.

Temptation to Overspend May Increase

When you spend with cash, you recognize the financial impact by physically taking the cash out of your pocket and giving it to someone else. With electronic payments, on the other hand, it's easy to swipe, tap, or click without noticing how much you spend. Consumers may have to rethink the ways they manage their spending.

Negative Interest Rates Could Be Passed Onto Customers

When all money is electronic, negative interest rates could have a more direct effect on consumers. Countries like Denmark, Japan, and Switzerland have already experimented with negative interest rates.

Note

Lowering interest rates generally helps stimulate an economy, but lower rates can also feed inflation, making it so money loses purchasing power.

According to the International Monetary Fund, negative interest rates reduce bank profitability, and banks could be tempted to hike fees on customers to make up that deficit. Banks are limited in their ability to pass on those costs because customers can simply withdraw their cash from the bank if they don't like the fees. In the future, if customers can't withdraw cash from the bank, they may have to accept any additional fees.

What Does a Cashless Society Look Like?

Without cash, payments happen electronically. Instead of using paper and coins to exchange value, you authorize a transfer of funds from a bank account to another person or business. The logistics are still developing, but there are some hints as to how a cashless society might evolve.

  • Credit and debit cards: Cards are among the most popular cash alternatives in use today, but cards alone might not be enough to support a 100% cashless society. Mobile devices could become a primary tool for payments instead.
  • Electronic payment apps: Apps like Zelle, PayPal, and Venmo are helpful for person-to-person payments (P2P payments). In addition, bill-splitting apps allow friends to split their bills easily and fairly. Fintech companies like Stripe, Adyen, and Fiserv support business-to-consumer (B2C) and business-to-business (B2B) transactions, as well as other account-to-account (A2A) online payments, in a reliable and speedy fashion.
  • Mobile payment services: These services, along with mobile wallets like Apple Pay, provide secure, cash-free payments. Many nations that use cash sparingly have already seen mobile devices become common tools for payments.
  • Virtual currencies: Cryptocurrency is already part of the discussion. Crypto is used for money transfers, and it introduces competition and innovation that may help keep costs low. However, there are risks and regulatory hurdles that make cryptocurrencies impractical for most consumers, so they might not yet be ready for widespread use.

Examples of Cashless Societies

Several nations are already making moves to eliminate cash, with the push coming from both consumers and government bodies. Sweden and India are two notable examples with two different outcomes.

Sweden

It's not uncommon to see signs that say, "No Cash Accepted" in Swedish shops. According to a Statista survey, less than 10% of people in Sweden reported using cash for a recent purchase, and the share of cash transactions in the country has been steadily declining over the past decade. Consumers are mostly happy with this situation, but those who struggle to keep up with technological developments continue to rely on cash.

India

The Indian government banned 500 and 1,000 rupee notes in 2016 in an effort to catch criminals and those working in the informal economy. The implementation was controversial, in part, because these notes made up 86% of currency in circulation. However, criminals weren't punished for hoarding untraceable cash, which had been the intent of the move.

The Economic Times cited the Reserve Bank of India as it reported that electronic transactions had increased temporarily, but cash returned to pre-demonetization levels by the end of 2017.

Note

While these two examples had varying levels of success, both countries struggled to address how the marginalized would fare in a 100% cashless society.

The Bottom Line

With the many technological and societal moves towards digital and virtual financial transactions, cash currency is becoming less and less common. However, the shift to a fully cashless society has many potential drawbacks, and only time will tell whether cash holds a special niche.

Frequently Asked Questions (FAQs)

What happens to the cash in circulation if a society goes cashless?

Most countries have a department within their governing body that regulates the printing and distribution of currency, as well as its destruction. In the U.S., the Federal Reserve has the power to issue money, but the actual printing (and yes, shredding, too), is handled by the Bureau of Engraving and Printing within the Treasury Department.

Who wants a cashless society?

A cashless society would primarily benefit certain businesses. While some individuals prefer using debit and credit to cash for convenience, businesses benefit from processing fees when consumers use their apps and services to send and receive payments. Handling cash is also expensive, so moving to cashless payments will also save businesses money and make transactions easier to track.

The Pros and Cons of a Cashless Society (2024)

FAQs

The Pros and Cons of a Cashless Society? ›

On one hand, transitioning to a cashless system can reduce crime rates, streamline financial transactions, and simplify international payments. On the other hand, it raises concerns about privacy, cybersecurity risks, technological dependency, economic inequality, and the potential for increased overspending.

What is the dark side of cashless society? ›

A concern closely linked to security is privacy. Identity theft and compromised personal information are potential dangers in a cashless economy, but privacy might be compromised in other ways too.

Why is it beneficial to live in a cashless society? ›

The advantages to cashless societies might include reduced physical crime (since there's no tangible money to steal), lower transaction costs, and the convenience of not needing to carry cash.

What are the benefits of a cashless economy? ›

A Cashless Economy enhances convenience, as digital payments can be made anytime and anywhere, reducing the need for carrying physical cash. It improves transparency and accountability, as digital transactions leave a digital trail that can be tracked and audited.

How does a cashless society affect the poor? ›

Crucially, this substitution has significant consequences for social inequality: while people with higher incomes typically benefit from cashless payments through easy and frictionless payments and access to short-term credit, people with lower incomes become increasingly dependent on financial services for which they ...

Why shouldn't we go cashless? ›

The downsides of going cashless include less privacy, greater exposure to hacking, technological dependency, magnifying economic inequality, and more. Credit and debit cards, electronic payment apps, mobile payment services, and virtual currencies in use today could pave the way to a fully cashless society.

Why are people against cashless society? ›

A cashless society would rely on a complex network of digital systems, which would be vulnerable to cyberattacks. If these systems were hacked, it could have a devastating impact on the economy.

Why do banks want to get rid of cash? ›

Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.

Which banks are going cashless? ›

Commonwealth Bank, ANZ, NAB and Westpac all confirmed on Friday that there are no current plans to go cashless. This comes after Macquarie Bank announced it would phase out cash and cheque services across all its banking and wealth management products from January to November 2024.

How long until cashless society? ›

Physical currency isn't becoming obsolete any time soon, so it's important to weigh up your options before deciding to go fully cashless in 2024. Ensuring you can accept some cashless payments though, is essential to keeping with today's trends and customer expectations.

Why are so many places going cashless? ›

Save Time. Going cashless may not only save time at checkout, but it can bring more efficiency to other business operations. Some bookkeeping tasks can happen automatically. You or your employees won't have to count the cash, balance register drawers, or physically deposit money into a bank.

Should we get rid of cash? ›

For instance, using cash instead of credit or debit cards may help keep some people from overspending, because you can see how little is left in your wallet after every purchase. In short, getting rid of cash would impose hardships on society's most vulnerable people and could jeopardize our privacy.

Which country uses cash the least? ›

Norway has the one of the lowest physical cash rates in the world, with only 3-5% of point of sale transactions paid for by cash. In 2021, Norway's central bank announcedthat it was exploring digital currency options to help facilitate the switch to a cash-free society.

Is China cashless? ›

China is one of the top countries for using cashless payment systems, but penetration is not 100%,” says Sara Hsu, an associate professor at the University of Tennessee, specialising in supply chain management. “Elderly Chinese still often prefer to pay with cash and some struggle with using mobile payments.”

What happens to cash in a cashless society? ›

A cashless society is one in which cash, in the form of physical banknotes and coins, is not accepted in any financial transaction.

What are the challenges of cashless? ›

➢ Akhalumeh and Ohiokha (2011) observed some challenges with the introduction of cashless policy and their findings show that 34.0% of the respondents cited problem of internet fraud, 15.5% cited problem of limited POS/ATM, 19.6% cited problem of illiteracy and 30.9% stayed neutral.

Who would suffer in a cashless society? ›

Poor people who rely on cash to ensure that they budget properly. Anyone in an abusive relationship who may lose financial independence without access to cash. People with physical or mental health problems who find using digital services difficult.

Is the US trying to go cashless? ›

It might be said that the US is headed toward a cashless society. Some small businesses have even put up signs saying that they no longer accept cash, another factor that's driving this change. Cash payments can take longer, limit potential sales, and open up businesses to the possibility of an audit.

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