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The Cashless Society

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As the technological world advances, it brings with it a host of changes in various other sectors as well. The financial world is most certainly one of the key areas where technology has made great impact. Today, the world can boast of the fastest payments system in the history of humanity. These changes have affected every aspect of existence. However, one of the areas that have been slow in adopting these new advancements is the money sector. Payment systems over a couple of hundred years have been dominated by the use of paper and coin currencies as the means of exchange. This placed the banks at the center of financial transactions. The banking system of payment has been in place for more than three hundred years, but the pace at which the transition from cash to cashless society has been quite slow.

Currently, the world does not just talk of the prospects of a cashless globe; there has been actualization on several fronts. There has been a lot of enlightened debates, all aimed at establishing ways to reduce the hurdles that come along with the use of cash. According to the payments council chief executive, Paul Smee, there will be no check payments by the year 2018, a claim echoed by many other analysts. Many see this revolution as the best way to address the huge number of crimes relating to cash across the globe. This means that the paradigm shift that is being experienced is the shift from cash to electronic modes of payment. This shift has been lauded by many, and a great number of people as well as financial institutions have offered their contributions regarding the pros and cons of the shift. However, the reality is that this shift has its own implications for consumers, banking systems, as well as for other financial institutions. This study is concerned with these implications, as well as the evaluation of the debate on the possibility of a cashless society.

Cashless Society- the Debate

Over the years, money has had various forms of representations, from barter system, to the use of coins, from coins to paper money, and now from paper currency to the high-tech electronic instruments. The shift from each of these forms to the other was occasioned by certain difficulties along the way. Barter trade presented challenges to value assignment to goods and services. This led to the introduction and use of the coinage system, with the underlying benefit being the obviation of loss of value created by arbitrary barter system. The use of coins also saw a shift, from the use of precious metals to the ordinary ones in the attempt to cut down on production costs as well as improve on portability. With the introduction of electronic cash transfer services, the world has experienced a radical shift in the use of paper money. The use of checks for instance has significantly reduced in the past couple of decades in many parts of the world, especially in the developed world. The complexities, high costs and delays in the banking sector, as well as the risks involved in the handling of cash are some of the major reason why the use of paper money is slowly fading away.

The use of credit cards for instance has had quite a significant increase in over three decades, slowing down for debit cards, which seem to be overtaking it. One must say, however, that there still remain a number of challenges in as far as the use of credit card is concerned. These challenges are related to costs, especially for both consumers and merchants. The other risk involved with the use of credit cards is that in case of fraud, particularly on the internet, the card issuers tend to charge the customers. This leaves the customers with huge losses. However, ongoing innovations have lead to the introduction of alternative payment methods. PayPal for instance is one of the most popular electronic payment systems available. This method does not require the use of physical cash in order to transact any business. The pace at which it has been growing shows that a lot of people are eager to embrace the change. It is claimed that there are over seven million users, which attests to this claim. This system has proven cheaper than the use of credit cards.

The introduction of intelligent credit cards in Europe has been faced with a lot of hurdles, with most financial institutions rejecting them. This has taken the stakeholders back to the drawing table in an attempt to establish a better and more acceptable system. Various studies have established that the use of virtual cash has not yet gained wide acceptance, despite the fact that several have the privilege of virtual cash options on their bank cards.

However, the challenges presented by the new technological advances in the electronic payment systems leads one to the conclusion that while many have projected a complete elimination of physical money, including checks, the realization of this dream remains at a distant future. Contrary to some of the predictions made, the year 2018 target may not be realized. As a matter of fact, although most of the transactions, even in the developing countries, are increasingly electronic, there still remains a group of conservatives, who strongly hold on to the physical system. This shift will most certainly be possible one day, because already a lot of progress has been made in this direction. As mentioned earlier, the introduction of electronic cash has a number of implications for consumers, bankers, and other financial systems. These implications are considered next

The Implications of a Cashless Society on Consumers

The coming of electronic cash can only be considered a timely thing for the consumers, because there are quite a number of benefits around it. One of the implications is that consumers no longer have to spend a lot of time conducting transactions, or worry about being mugged when carrying cash. Most importantly, consumers will be able to effectively monitor and control their spending. Budgeting becomes easier with this technology, because one only needs to check on their trend, which is preserved accurately in the cards. Furthermore, these cards are much lighter, presenting very easy portability as compared to cash. This option provides the possibility of carrying any amount of money with great convenience.

With regard to this issue, there are those who choose to be optimistic, while others prefer to be pessimistic. The pessimists believe that the moment the society becomes cashless, privacy will have gone to the dogs. In other words, there will always be some kind of surveillance on whatever one is doing. There will always be someone keeping an eye on the various trends of consumers, both for personal and corporate gains. For instance, some people believe that the shopping malls would always want to analyze their customers’ spending habits in order to try and satisfy it more and benefit from it. People’s lives would no longer be private, because the governments could always survey on the people in the name of fighting crime.

The Impact on Banks and Other Financial Systems

Historically, the banks, particularly the central banks, have been charged with the responsibility of controlling whatever money is in supply. If the electronic money was to replace the physical money, then the role of the banks would have to be revised. There would be a major challenge with regard to the measurement of the money in circulation. This in turn would severely limit the ability of the central banks to carry out open market operations. The role of the banks as the custodian of customer’s deposits would also be greatly curtailed. The use of PayPal for instance, has eliminated the need for inter-bank transactions, which leaves the banks with much less to do, and possibly forcing them to reduce the number of their employees.

In the modern society, banks play a big role in credit issuance, which is all in the form of cash. The interest charged by the banks on those loans provides them with quite a significant amount of profits. However, if a cashless system was to be introduced, the rules governing the issuance of loans would have to be revised. The cost of handling cash is usually quite high, and the risks involved also magnanimous. Analysts have claimed that the new system would eliminate some of the expenses that accrue as a result of handling cash.

At the same time, a new system would mean that the banks would no longer have to pay exorbitant prices for cash in transit security services. At the moment, every bank has to invest heavily in some security company in order to protect its cash. All the money would be in some kind of a computer, and all transactions carried out electronically. Therefore no more need for cash in transit security services.

The already initialized process of elimination of cash comes with a lot of opportunities for financial service providers. For instance, PayPal has found itself a booming business, thanks to the need for an alternative. Mondex and Visa are other examples of companies that stand to benefit with the elimination of cash. However, these companies would have to do a lot more in order to ensure that the services they provide are in tandem with the changing trends in society.


As discussed, although the process of elimination of cash has made considerable progress, there still is a lot to be done, before the total elimination of cash in society can be achieved. The current pilot projects by various companies have proven to be problematic at times, leaving the banks as the more efficient, even though not always convenient. There also remains a lot to be done in terms of convincing the consumers to adopt these new systems. However the government could help a lot in so far as this is concerned. The major challenge though is poverty. A lot of people in the entire world are still very poor and marginalized. This means that for them, having a credit or debit card is an unachievable dream. It is for these reasons that the realization of a cashless society is quite a distance away.


Anderson, A. (1966). An Electronic Cash and Credit System. New York: American Management Association

Anderson, R. (1994). Why Cryptosystems Fail. Communications of the ACM, 37 (11): 32-40

Bernkopf, M. (1996). Electronic Cash and Monetary Policy. First Monday, 1 (1): 1

Carroll, J. M. (1996). Computer Security. London: Oxford University Press

Congressional Budget Office (1996). Emerging Electronic Methods For Making Retail Payments. Washington: The Congress of the United States

Ives, B., & Earl, M. (1997). Mondex International: Reengineering Money. Case Study. London Business School

Shelfer, K. M., & Procaccino, J. D. (2002). Smart Card Evolution. Communications of the ACM, 45: 83-88

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