Why Becoming A Cashless Society Is A Terrible Idea

there are many ways to pay for things

credit cards wire transfers frequent

flyer points sticks of gum crypto

currencies

checks if they're still a thing and of

course cold hard

cash physical cash is one of the easiest

ways to

instantly and reliably conduct commerce

perhaps that's because it's tangible and

by and large

universally understood as a medium of

exchange this is important to understand

because the success of any economy is

predicated on commerce

therefore the need for making

transactions as simple as handing over a

note is paramount to the success of any

nation

now this is certainly not news it has

been well documented that the ease of

transactions within a nation

is as big of a determinant of economic

success as access to natural

resources like oil or natural gas or

even a well-educated population

fortunately modern financial systems

have made spending money

extremely easy and a lot of that is by

design

although amongst all of this cash is

still a staple of regular transactions

so what would happen if we got rid of it

and this is not some obscure

hypothetical

in fact for a while now society has been

pulling back on the use of cash in a

very big way

just think when was the last time that

you paid cash for anything

for some of you perhaps it's all the

time but for most

the ease of tapping a credit card or

then mowing some money

makes these paper rectangles all but

obsolete the decline of cash is not all

due to technology however

many countries have enacted laws making

it much more difficult to use paper

currency

the australian government for example is

expected to make cash transactions of

more than ten thousand dollars

illegal and the disappearance of cash

isn't only affecting my fellow aussies

all governments are naturally suspicious

of large physical cash deals

say you live in america and instead of

purchasing your million dollar house

with a 30-year mortgage you instead go

into the bank with a briefcase full of

cash

sure it would technically be perfectly

legal for you to make such a purchase

with paper currency

but you better be prepared for a whole

lot of questions and

probably face an audit so would going

completely cashless really be that bad

do governments really want to get rid of

cash and in our current world of

negative interest rates

would getting rid of cash hurt people

that just want to hold on to their money

rather than having to pay a bank a

negative interest rate for the privilege

of doing so

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economics explained for those of you who

don't remember the last time you paid

cash for anything

it's logical to think that a cashless

society is just the natural result of

technological progression

after all we no longer use gold coins or

goats to trade with one another so if

technology makes it better

and easier to do everything

electronically then what's the harm in

embracing change cash is great but from

a consumer's perspective there are far

more compelling options consider credit

cards for example

if your cash gets lost or stolen or

destroyed

it is gone on the other hand if you lose

your credit card

you just order another one if it gets

stolen you reverse the fraudulent

charges

and you get all of this while benefiting

from the ability to earn rewards like

cash back on purchases or frequent flyer

points

what's more there's no need to be there

in person to hand over a credit card

like there is with say cash

which is particularly important in this

day and age after all

you can't send physical cash to

patreon.com economics explained

of course credit cards do have their

drawbacks

if used irresponsibly and not paid off

in full every month

they carry extremely high interest rates

often well over 30 percent depending on

the provider

and even for those people that do pay

them off in full every month

cards may be hurting their finances in a

less obvious way

a 2018 paper published by the bank of

international settlements found that

there was a strong correlation between

someone's credit card limits and that

person's marginal propensity to consume

in plain english this means that people

are more likely to spend more of their

money

if they have a big credit card or even

worse

lots of credit cards but putting debt

aside for the moment what are some of

the other problems with using a credit

card

well it's actually right there in the

name when you buy anything with a credit

card

you are paying with credit in other

words a promise

a promise to the credit card company

that you will pay back the sum that was

loaned to you

on time or if not on time than with

interest

cash or credit are terms that are often

used interchangeably

but in reality credit is quite different

from cash

functionally this is very important in

the banking world because free flowing

access to credit

boosts consumption in the short term

normally at the expense of growth

in the long term so as for the cashless

economy debate

credit cards may not necessarily be a

perfect substitution

fortunately we have debit cards which

can only let cardholders access the

money that they already have

while still offering a lot of the same

functionality of credit cards

without high interest rates or a

destabilizing impact on consumer

spending in the debt cycle

this hybrid approach if you will

combines the best of both worlds

the ease and functionality of a card

with the reliability of

cash problem solved right well not so

fast

because as it turns out there is one

major thorn in the side of

all of these services merchant fees

so far we've only considered a cashless

economy from the perspective of a

consumer

but of course the supplier is also a

very important part of this equation

card providers like visa and mastercard

make a good portion of their revenue

from merchant fees

which is a small fee that is charged to

the business or merchant on all credit

and debit card transactions

made to the business and by small we're

usually talking around one to two

percent which depending on a variety of

factors

might not actually be small at all for