There has been a bit of news lately about Sweden moving to become a cashless economy. Their cash in circulation is only equal to 3.5% of their economy, which compares to 7% for the US for 9% on average for Europe. Frankly, I am surprised the US is that low – I would have guessed more at 10%.
Apparently, Sweden has recently introduced the near-field phone-based payment networks and those have furthered the trend of customers using card- or phone-based systems of payment.
Anyways, some of the advantages of cash-less systems are less risk of theft, lower costs of transporting cash (no need for security guards!), and ease of conducting payments. Another possible benefit is to make it more difficult to conduct bribes, since in an electronic system all transactions would have a record associated with them.
This gets to some of the disadvantages. The first and primary is cash-less systems fail when there isn’t communication network access, or especially in locations without electricity. Or in an emergency, when both of those situations can rapidly occur.
However, most of the developed nations have electricity and at least some form of cellular network available, so this is less of an issue. Another downside is convenience – there are just certain transactions that are faster in cash. Taxi cabs are one where they absolutely hate hate hate credit cards (often because they get hit with higher fees as high as 5 to 7 percent!). Or have you ever decided to pay for a $1.50 cup of coffee with a credit card? Don’t be that guy! With small purchases, the network fees eat up a larger proportion of the overall payment, hurting retailers.
But one of the biggest potential downsides may be this lack of privacy that cash provides. I think people should have a way to pay each other anonymously, and no that doesn’t mean I favor illegal drugs or dealing in stolen merchandise. I just see that having access to all payment transactions could be abused in the hands of an unfriendly government. But others might not see this as big of an issue – do you?
But even in Sweden, there is some doubt that cash will entirely disappear, even at their Riksbank. But the trend is moving away. At any rate, I’m actually glad this isn’t happening here in the United States yet. In fact, hearing about it makes me want to go pull out a bunch of cash and try to do a cash-only run for a while. What about you? Where do you think payment networks will go in the future?