BY ANTONY MUTUNGA
Around the year 2000 B.C the world changed, people started using ‘hard cash’ currency for the first time. This was indeed a marvelous idea that saw barter trade diminish. From there on things got even better with the introduction of paper bills or notes in China during the Tang Dynasty (AD 618 – 907). However, it took almost 500 years before the rest of the world recognized paper money, and when they did, they never looked back.
As the years went by there was increased innovation in financial technology, from the establishment of plastic money (debit and credit cards) to digital currencies (bitcoin). The same way hard cash replaced barter trade, it’s time seems to be up with other means of payment knocking at its door. Today, there is a war on cash currently going on that we are highly neglecting and ignoring its ramifications. People are using physical money less and less all over the world as other means of payment take over the spotlight leaving the once popular medium to the dark.
This has led to the growth of less cash societies. According to economists, in 2015 only 8% of the world’s money was in physical cash. Cash is becoming obsolete and inefficient payment system only used by those who are not ready to move f to other more advanced payment systems like card based payments and electronic payments. This has caused consumers and organizations to change and start using these other payment systems instead of cash.
It is the dawn of a new era; the world is heading towards a cashless society. However, is this drive something we should be looking forward to? This has sparked arguments all over the world; some believe that a cashless society is better while others still prefer to have the option of using cash. A cashless world would mean the complete abolishment of cash in the economies, as consumers and organizations will stop using and accepting cash as a medium of payment.
Kenneth Rogoff, former chief economist at the International Monetary Fund and now a Harvard University professor agrees that there is still too much physical cash in the world. He argues that cash helps to facilitate crime because cash is the median mostly used in bribes and financial crimes. This is because it is easily portable and anonymous.
For example, in India where cash is king, there are more than 600 million fake Indian currency notes introduced in the market every year to support terrorism. On the other hand, Sweden, the most probable country to be the first cashless society, has a low rate in financial crimes. The credit goes to the use of electronic payments rather than physical cash. This move to a cashless society is because of the amplification of more innovation in financial technology.
Mr Rogoff, in his new book, The Curse of Cash, also believes that physical cash facilitates tax evasion because it is difficult to track hence hiding some transactions from authorities. Consequently, this causes governments to lose a lot of money that would have helped increase the growth of economies.
In addition, studies show that cash hampers central banks from setting negative rates even though they may be able to assist during recessions. Experts assume that if there were no cash in the economy, then every person would need to have bank accounts or digital platform accounts to deposit their money. In case of a recession, the central bank, that would regulate these platforms, would be able control the public’s deposits through negative charges stirring them to spend more.
Despite talking strongly on the negative effects of cash in the society, Rogoff says he was not advocating a cashless society, as it would be neither feasible nor desirable anytime soon. He said he would prefer a less-cash society that would be a fairer and safer place.
In the case of a cashless society, there will be no physical cash to facilitate criminal activity. However, this would be in exchange for the public’s privacy. People will be required to have bank accounts or mobile money because there will be no physical cash. As a result, the banks and mobile providers will know everyone’s transactions, killing of the people’s privacy.
In Kenya for instance, most of the transactions are through mobile money, this enables the mobile providers to know the person or organization one is transacting with hence limiting one’s privacy. Consequently, there is a need for cash in the society to be able to ensure that everyone’s privacy stays intact.
Financial inclusion is another reason. The world is not ready for economies that have made cash redundant. There are about two billion people in the world without a bank account according to the World Bank, not counting those that share one with either family or friends. If the world was to go cashless, many people would be alienated for having no accounts and that would be against a universal policy aimed at financial inclusion. Even though countries like Sweden have offered free accounts on debit cards for their people, not every country can afford the luxury.
People require cash at hand when they lack confidence in banking institutions, it safeguards against economic volatilities that tend to occur periodically according to history. In the case of a cashless world, the public will be unable to do bank runs hence people will not be able to safeguard their own savings. This will leave people at the mercy of financial institutions that would use this advantage to control the market in their favor.
Henceforth, cash is still a necessity. .To reduce criminal activity and still keep the public’s privacy in check, the world needs to integrate the existence of both cash and cashless systems to cancel out the adverse consequences of each system.
