The Cashless Society
The 1970s Swedish pop group Abba wrote a song titled “Money, Money, Money.” Today, visitors to the Abba Museum in Stockholm can’t use coins or bank notes to pay the entrance fee; they only accept plastic or apps.
The New York Times reports (December 2015) that even Swedish “Homeless street vendors carry mobile credit-card readers [and] many of the country’s banks no longer accept or dispense cash.” Even when the collection plate comes around at church, worshippers can donate with plastic.
Sweden has plunged further into a cashless society than any other nation. Gone are the days when people carried wads of bills in purses and wallets and coins jangled in pockets. Almost gone too are cheques mailed to businesses to settle accounts. Old-fashioned cash now accounts for two or three percent of Sweden’s economic activity, compared to 7.7% in the United States.
Fifteen years ago Swedes used debit or credit cards 213 million times a year; in 2013 this had jumped to 2.4 billion. Even plastic might be on the down slope as people turn more and more to phone apps to handle financial transactions.
The Upside of Cashless
- Every transaction creates a record so budgeting and record keeping are much easier;
- Many people don’t keep receipts so if there is a dispute over a purchase the proof exists;
- Money is saved because coins and bills don’t have to manufactured;
- Banks will see lower costs by not having to count and secure physical money;
- Some people might not see the digital trail as an advantage if they try to cheat on their taxes;
- Counterfeiting will become a skill that belongs to the past like stage-coach hold-ups; and,
- When consumers use credit or debit cards rather than cash they tend to spend more. This, obviously, creates more economic activity and, therefore, more jobs.
Bad News for Bad Guys
Time was when a man with a knife, gun, or even a large, threatening fist could take cash from people in the street. A study in the U.S. confirms that street robberies are down and that going cashless is the reason. In the 1990s, governments started to deliver welfare benefits electronically. Poor people no longer had to cash their cheques and carry the money home. Bloomberg News says (April 2014) this meant “a big reduction of cash on the street and, as a result, significantly lower crime rates.”
The same rule applies to bank robbery. There’s no incentive to threaten a teller with a gun if there’s no cash in the building. Of course, the smarter crooks now carry out their crimes with computers.
There’s another thing the criminals don’t like about going cashless. Deals settled with bags of cash are hard to trace; electronic payments leave a trail that law enforcement can follow.
No computer system is completely error free. All networks have glitches and are prone to failure.
If money is to be carried as a digital signal on a smartphone it has to be protected against theft. Experts say the best way to do this is by using biometrics. This means that the owner’s finger prints, iris scan, or voice signature are needed to unlock the device. If the smartphone is lost or stolen it can’t be opened by anybody else. But even biometrics are not 100 percent secure. A study in the United Kingdom found that biometric security systems can go wrong as much as one percent of the time. That doesn’t sound like much, but about 24 million Canadians have smartphones. So, 240,000 can expect to have biometric identification failures every year.
There are other problems:
- If the phone dies its owner is out of money;
- It’s easy for someone with ill intent to shut down a smartphone remotely;
- Hackers will certainly be working on ways to get around digital wallet security; and,
- Biometric signatures have to be stored in central databases and criminals will be eager to access this information.
While electronic cash makes it easier and quicker to handle money, it has the same impact on the abuse of money. When people don’t use physical cash they spend more, and this can and does cause debt problems.
A Bank of Montreal study in 2015 found that almost half (46 percent) of Canadian credit-card holders don’t pay off their full balance each month. That means they have to pay an annual interest rate of 20 percent or more on what they have borrowed. This makes it harder for people to save for emergencies or retirement. According to an article in The Atlantic (May 2016), 47 percent of Americans could not come up with $400 to deal with an unexpected expense.
Paying cash carries no fees, but there are charges for using credit cards. Merchants must pay 1.5% or more to credit-card companies on the value of each transaction. Store owners, restaurants, and other businesses add this cost to their prices. In a cashless society every transaction would have a processing cost.
There are privacy issues as well. When someone uses a credit card the information about the activity is stored somewhere. Businesses mine this data and can and do draw up profiles of peoples’ spending habits. Scores of retailers such as Target, Home Depot, and Ebay have been the victims of cyber attacks by hackers. The personal records of hundreds of millions of customers have been accessed.
Whatever the benefits or drawbacks of a cashless society, it’s on its way.
For Light Relief Here Come the Conspiracy Theorists
Bitcoins are a new sort of money that doesn’t actually exist; it’s called a cryptocurrency. The money is valuable simply because people believe it is valuable.
Bitcoins can be used to buy things electronically. In that sense it is like regular currencies, such as dollars, pounds, and yen.
However, the bitcoin currency is not controlled by any government or banks.
Conventional money exists in a form that can be touched. It is based on gold. In theory, a person can go to a bank, hand over a dollar, and get a dollar’s worth of gold in return. Bitcoins are not based on precious metals but on mathematics.
Coindesk.com explains: “Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.” This is called mining and involves solving complex mathematical sums.
According to The British Broadcasting Corporation, “… the sums are becoming more and more difficult to stop too many Bitcoins being generated. If you started mining now it could be years before you got a single Bitcoin.”
As of the summer of 2016, one Bitcoin was worth about $875 Cnd.
In 2009, Norwegian Kristoffer Koch bought 5,000 bitcoins at a cost of $27 total. He forgot about them until 2015 when he discovered they were worth $886,000. It was enough to buy an apartment in a sought-after area in Oslo.
“How a Cashless Society Could Embolden Big Brother.” Sarah Jeong, Atlantic, April 8, 2016.
“Fighting Crime by Going Cashless.” Cass R. Sunstein, Bloomberg News, April 29, 2014
“Pros & Cons of Biometrics and a Cashless Society.” David Gomez, Money Crashers, undated.
“Guide: What is Bitcoin and how Does Bitcoin Work?” BBC, January 24, 2014.