The Benefits and Drawbacks of Cashless Society

Thesis

By

Kristýna Kudrnová

Submitted in Partial fulfillment

Of the requirement for the degree of

Bachelor of Science

In

Business Administration

State University of New York

Empire State College

2019

Reader: David Starr-Glass

 Statutory Declaration / Čestné prohlášení

I, Kristýna Kudrnová, declare that the paper entitled:

The Benefits and Drawbacks of Cashless Society

was written by myself independently, using the sources and information listed in the list
of references. I am aware that my work will be published in accordance with § 47b of Act
No. 111/1998 Coll., On Higher Education Institutions, as amended, and in accordance
with the valid publication guidelines for university graduate theses.

Prohlašuji, že jsem tuto práci vypracoval/a samostatně s použitím uvedené literatury a

zdrojů informací. Jsem vědom/a, že moje práce bude zveřejněna v souladu s § 47b zákona
č. 111/1998 Sb., o vysokých školách ve znění pozdějších předpisů, a v souladu s platnou
Směrnicí o zveřejňování vysokoškolských závěrečných prací.

In Prague, 25.04.2019 Kristýna Kudrnová

 Table of Contents
Abstract .................................................................................................................... 5

1 INTRODUCTION ................................................................................................. 5

1.1 What the term “Cashless society” means .............................................................. 5

1.2 Statement of the question..................................................................................... 5

1.3 The purpose of the study....................................................................................... 6

2 HISTORICAL PERSPECTIVE .................................................................................. 9

2.1 The evolution of money ........................................................................................ 9

2.2 The evolution of banking ..................................................................................... 12

3 DIFFERENT PERSPECTIVES ................................................................................ 14

3.1 Why governments are in favor ............................................................................ 18

3.1.1 Tax collection & Transparency.......................................................................................... 18

3.1.2 Illegal immigration ............................................................................................................ 21

3.2 The opposition of individual consumers .............................................................. 24

3.2.1 Convenience ...................................................................................................................... 24

3.2.2 Consumers’ privacy ........................................................................................................... 25

3.2.3 The matter of choice .......................................................................................................... 27

3.2.4 Rich versus poor ................................................................................................................ 30

4 THE ROLE OF BANKS ........................................................................................ 33

4.1.1 When the bank fails ........................................................................................................... 34

4.1.2 Negative Interest Rates & Fees .......................................................................................... 36

4.1.3 Revolut .............................................................................................................................. 38

5 CRIME .............................................................................................................. 40
 5.1 Cash – the fuel for criminals ................................................................................ 40

5.2 Cybercrime .......................................................................................................... 42

6 Insight to the future ......................................................................................... 45

7 Conclusion ....................................................................................................... 49

References .............................................................................................................. 51
Abstract

This study is an exploration of the main benefits and drawbacks of the cashless society,

the world without physical currency, offering only electronic methods of payment. The

way people pay for their purchases has changed considerably since the introduction of

credit cards, debit cards, and mobile wallets. The first part of this study presents the

evolution of money so that the reader can better understand its further development. Then,

the study researches the advantages and disadvantages of becoming cashless regarding

governments, individuals, and banks individually. The first discusses how effective the

fight against cash is on tax evasion and illegal immigration, issues that the governments

are unable to tackle. For the individuals, the chapter considers whether the convenience

of usage compensates for the loss of privacy and choice. Banks, the major beneficiaries,

could gain a monopoly power over the money market highly supported by individuals’

inabilities to withdraw. Finally, the tremendously controversial chapter on crime is

discussed. This last chapter examines whether the move towards electronic payments

decreases or increases criminality among people. Even though such a society brings more

benefits to some than the others, it is the authorities’ decision if the cash will be phased

out, reduced, or left untouched. Therefore, this study attempts to serve as a source of

information for people to become more knowledgeable and prepared for what may come.
 1 INTRODUCTION

1.1 What the term “Cashless society” means

Cash – the physical money consisting of banknotes and coins– is mostly taken for granted.

Even though the number of people using digital methods of payments is rapidly

increasing in the modern era, the majority of the population is still carrying at least some

cash in their wallets. Continuous cash usage does not change the fact that the society sees

more and more people every day in the coffee line, solely conveniently approximating

the small plastic card to the payment terminal instead of seeking the coins in their pocket

or searching the wallet in their bags. Some may see it only as a next step in a society’s

development caused by enormous global technological boom. However, with the cash

still in the circulation, it is consumer’s free choice to use paper money and coins or the

card, and alternatively different digital methods of payment, to complete the purchase and

transfer the money to the seller. It is about consumers’ personal preferences but also their

awareness of the benefits and drawback of both of them – cash or a digital payment.

“Cashless society” therefore means the world without cash in the circulation. It introduces

the world where the consumers would have all of the savings deposited in the bank, not

being able to withdraw paper money as there would be nothing to withdraw.

1.2 Statement of the question

The intent of this research paper is to examine if the benefits of implementing “cashless

society” and abolishing cash prevail over the drawbacks and how would the

implementation influence different groups of people and organizations. The paper will

mainly focus on the effect on governments, banks, and individual consumers, if the

5
benefits and drawbacks are equally spread within the society. Even though the knowledge

about the existence of credit cards and cash machines has been revealed to the consumers

already around 50 years ago, the current huge interest in the topic brought several

attempts of different countries to reduce the cash in the circulation, such as Sweden, and

India. It is important to notice that moving towards cashless is daily changing and very

contemporary topic. Considering the rise of electronic payments and technological

development in recent years, it is unprobeable that the move towards cashless will cease,

which makes this topic highly relevant. The topic is not fully developed, and no one can

properly estimate if the world without cash would really work the way the experts claim

it would. Referring to the countries that have already started moving toward the less-cash

or cashless living will give clear clues indicating how would such society look like.

1.3 The purpose of the study

The purpose of this study is to critically address what follows the phenomenon of

removing cash in the society, adding new insights and ideas. Niklas Arvidsson (2017), an

Associate Professor at Royal Institute of Technology, leading several studies and

researches on the cashless society and mobile payments especially in Sweden, claims that

it is necessary to create a better understanding among people regarding the transition

towards cashless world. Also, the professor says it is important to realize what the move

to less cash means for different actors (Arvidsson, 2017). One can use the knowledge

gained from this study to better understand the trend, how the change can be proceeded

and how to adapt easily to such shift. Also, the authorities can draw another point of view

from this study. The picture they obtain can be useful for the consideration of the

6
necessary steps they should make in order to implement “less cash” or “cashless” society

without issues, to use the advantages of the move and eliminate the disadvantages.

Similarly to the majority of industries, financial and banking industry are going through

development and consequent changes. That is why going cashless could be seen as the

next step in the evolution of money, which went from barter through coins, later paper

money and current digital payments. It brings the number of benefits, from which the

reduction of tax evasion, hidden economy, the cost of handling cash, and crime seem like

the most alarming. They are the issues that the government is unsuccessful to address for

decades and that the reduction or the abolition of cash as a whole could help. The better

control over financial transactions, gained thanks to the transparency of online

transactions, could increase the efficiency of governments and banks and decrease the

wrongdoing in the world, promote equality and justice. As Wright (2016) claims, cash is

a perfect tool for criminals – liquid anonymous, untraceable, fuel driving criminality,

vulnerable to counterfeiters and thieves. While the governments and banks are pleased

by the idea, and they are right to do so as the benefits are crucial for the modern era, not

all of the individual consumers see it the same way. They doubt that such society would

put them into advantage the same way as it would benefit already mentioned institutions.

They are being said that the digital payments are designed for consumers’ convenience,

but the great amount of population do not feel convenient using the internet, through

which the internet banking works. Only in the UK, nine percent of the population has

never used the internet (Clark, 2017, p. 44). Not only could that be caused by their

unwillingness to use it but also due to the poor internet connection in the region where

they live. For some people, the abolition of cash would have an adverse effect than it is

claimed by authorities and “cashless” supporters. Thus, both sides, the positive and the

7
negative one must be properly assessed, the costs weighted, in order to see where the

strengths and weaknesses of the “cashless society” are.

In the first part, the study will focus on the historical perspective of money evolution. It

will give the readers the necessary overview in order to better understand the further

development of the study. The evolution of physical money and banking will be

presented. In the second part, the study will aim to properly address and assess the number

of benefits and drawbacks, which would become real in case the cash stops flowing. The

assessment will be divided between governments, individual consumers, and banks.

After, another important controversy, the description of crime in the era of physical

money and the potential threat of cybercrime in the “cashless society” will be analyzed.

Throughout the study, different cases will be investigated to see what the world can learn

from them. All of the cases chosen have its purpose as all of them approach “cashless”

differently and therefore, they are covering the great range of the advantages and

disadvantages that would the reduction of cash bring. Based on the exploration of these

cases, the study will suggest how should the society prepare for the reduction of cash in

order to adapt smoothly in case it really takes place. The suggestions should ensure that

everyone is prepared for this next step in the evolution and no individual is left behind.

8
 2 HISTORICAL PERSPECTIVE

2.1 The evolution of money

This chapter neither serves to simply narrate the history of the evolution of the money

nor to present any specific details. The main aim is to give a reader an overview so that

he/she can better understand the issues that will be discussed later in this study. Money is

something that every individual need in order to survive. Davies (2002) defines money

as “an institution that is widely used for making payments and accounting for debts and

credits” (p. 28). In simple words, it is a medium of exchange. Following Federal Reserve

Bank of St. Louis (n.d.), money has three functions, which could be used to define the

term as well: store the value, being a unit of account, and, similarly as Davis (2002, p.

28) claims, being a medium of exchange. It is needed in order to exchange it for and

satisfy individual’s needs, such as water, food, and living (sleep), but also wants. With

the money system the society knows now, it is relatively easy as the official currencies

are widely accepted. But it was not always like that.

Banknotes and coins have not served to the consumers since always. They later replaced

the initial mean of exchange – barter. Barter is an act which consists of goods or services

exchange between traders. Its disadvantage lied especially in the fact that it was

enormously time-consuming and therefore, inefficient. Following Jevons (1875), there

must be a “double coincidence” in order to make the barter between individuals happen.

The individual who wants to trade his/her cows for chickens firstly has to find the

individual who has the chicken but secondly, he/she had to find someone who wants to

trade those chickens for cows, which the first individual is offering. Without such match,

the trade could not occur. The civilizations realized that such method of exchanging good

9
is extremely inefficient and came with commodity money, which possessed generally

accepted value of goods (Davies, 2002). Because of the high demand for the goods that

served as a commodity money, they could have been used as a currency. The commodity

money was needed not only to have a standardized measure to facilitate barter between

two individuals but also to have a mean to compensate, for example, a father giving the

hand of his daughter or to satisfy a tax collector.

The development of money went from commodity through several primitive forms of

money, such as cowry shells in Africa, wampum, strings of beads, of North America or

disc-shaped stones on the Pacific island Yap, and many other objects were commonly

used as a payment (Federal Reserve Bank of St. Louis, n.d.). This confirms that no

definition, but the function of money is the important factor. It does not matter which

form the money acquires as long as it is accepted by people as a medium of exchange.

What was perceived as the trade facilitators as well as the intruder of bureaucratical

control was brought by the introduction of first real coins, with a standardized values,

around 640 B.C. in Lydia, quickly spread to Persia, ancient Greece, where the production

of gold, silver, bronze, and later copper, zinc, nickel, metal coins started in Athens

(Chavas & Bromley, 1954). The minting of coins later spread to Europe, and the coins

started to be widely used.

Even though the coins first seemed like the convenient medium of exchange, trading

partners later discovered that the weight when exchanging large sums is intractable. That

is the period when the idea of paper money was born. In 1295, merchants were

encouraged to start using bills of exchange, which facilitated them to trade on a long

distance as well (Robertson, 2007). Surprisingly, the developing country, currently an

10
emerging economic giant, China, is the country that started with the usage of banknotes

as the first one in about AD 960 (Davies, 2002) due to the lack of copper necessary for

copper mining. Later on, bankers got the idea of issuing paper notes as the confirmation

that the customer deposited gold, silver or jewelry to the bank. These notes became

accepted by people as a medium of exchange and paper money were finally born.

In order to equalize the value of different currencies, they were commonly backed by

gold. This phenomenon, as well called “gold standard”, ensures that the money is fixed

to a specific amount of the precious metal. Although the system appeared being stable as

a whole, it was destroyed by the need of governments to finance the World War I (Rogoff,

2016, p. 28) and eventually huge inflation caused by the massive money printing. The

attempts to restore the system after the period of wars were all unsuccessful, which led to

the conference at Bretton Woods, which was held in America in 1944 as World War II

was ending and the allies realized that a new global financial system would be required.

The authorities discussed how to reboot the economy and fix the exchange rates again

after the devastating period full of cruelty. The proposal of one international currency

was rejected by the USA who wanted to become part of the world with the most

influencing currency. The conference resulted in the decision of the American dollar

being linked to gold and other world currencies being linked to the dollar (Robertson,

2007). The regime agreed on the conference at Bretton Woods worked until 1973 when

the relationship between the dollar and gold has been erased (Rogoff, 2016, p. 30). In

other words, the currencies were left with no intrinsic value and started to flow against

each other freely.

11
There are three crucial points regarding the currency emerging. First, the medium of

exchange is anything but stable. Not only it acquired the great number of forms

throughout history, but the better and more convenient solution always wins. Second, the

technological development of the society is important for the evolution as it prevents the

production of counterfeited both coins and paper currency. However, as Rogoff (2016)

claims, the fraudsters eventually find the back door of the technology, which created the

need for new invention to defeat imitated money. And finally, throughout each step in the

evolution of money, the crucial role played the trust and faith of people put in the actual

medium of exchange and their willingness to accept it. The distrust of the public could

disregard the currency. The transitions did not happen overnight as they were slowly

developing together with the evolving technological progress and innovations. In other

words, the longer transitional period let the public to get used to something different and

did not betray their trust in the current system. How to correctly include the public into

new system is an important topic and the authorities should keep it in their minds when

implementing “less cash” or “cashless” society.

2.2 The evolution of banking

The invention of banking preceded that of coinage. Even though the first commercial

banking emerged in Italy in the 12th century, first sights of lending money appeared

already around 2000 B.C. in Babylon (Roussakis, 1997). The loans were made especially

by the priests in the temples as they recognized the demand for the stored gold could be

higher among some individuals while others do not need it at the time. Traditional

banking was initiated through the concept of safe deposits of, for example, already

mentioned gold, silver, jewelry. The first central bank was established in 1694 as a private

12
entity of one London businessmen who offered a deal to King William III who

desperately needed more money to fight the war with France (Robertson, 2007). The bank

was established based on the trust of the owner of the bank that King William will pay

the interest. The idea of unlimited money incentivized the king to borrow more and the

bank to print more of the banknotes, which led to huge inflation. The private entity has

been nationalized in 1946. The evolution continued through the first credit card in 1950,

first cash machine in London in 1967, the rise of online banking in 1980, the launch of

the cryptocurrency, which received a lot of public attention as a first one, and the start of

mobile wallets just recently (UBS, 2018). Such development prompts the idea that the

evolution and innovations within the financial industry are natural and cash an

anachronism in the technologically developed era.

In the modern banks, the fact that customer deposit money to the bank does not mean that

all of the amount is physically stored in the institution. It means that the person is basically

lending money to the bank, which can forward it in a form of a loan to another customer,

collecting interest for that. The customer is allowed to withdraw his/her savings at any

time. This sounds like a perfect deal for both – the customer can have money safely

hidden while the bank can make profits, as the purpose of any business states. This is true

until the bank collapses, for example in the USA in 2008 due to the enormous number of

unhealthy mortgage securities, during technological breakdowns or any kind of

emergencies. The world has learned few times in the history already that cash is still the

king during the crisis (UBS, 2018). But what if cash does not exist? The next chapter of

the study will be devoted to such controversy.

13
 3 DIFFERENT PERSPECTIVES

The world is moving towards electronic payments, such as debit and credit cards, mobile

wallets, mobile apps, while the usage of cash is decreasing, especially in developed

countries. Even though the term “cashless” is pretty new, the research by ING (2017)

shows that already 21% of Europeans rarely carry cash in their wallets. However, the

great number of people, around 76% of European population, refuse to go completely

cashless (ING,2017). The reluctance to abandon cash completely is created also by the

fact that people still feel convenient to use cash for small transactions. This means, they

do not carry large-denomination notes with them but only small ones for low-value

purchases. ING survey (2017) confirms that 67% of people in Europe still pay their

snacks, lunches and coffee using cash. Additionally, it is clear that there are huge

discrepancies between different cultures. For example, French people are more oriented

to less cash in their wallets than Germans. The figure 1 shows that in Germany 51.3% of

purchases are still cash made. The other 48.7% of purchases are cashless, made usually

by debit or credit cards. As Germany is considered as one of the most developed countries

of Europe, the number of cashless transactions is pretty low. Sweden is the Europe’s

extreme, using cash only at around 13% of transactions (Cerulus & Contiglulia, 2018).

The country is aspiring to become first cashless country.

14
Figure 1. Cash and cashless proportion in Germany, source: Korella (2017)

But what more, there are also huge distinctions between individuals in developed and

developing economies. Nowadays, some individuals cannot even imagine living without

a credit card anymore while others do not have the possibility to create a bank account.

According to The World Bank report, around 1.7 billion of adults around the world

neither use an account with any financial institution nor they have the possibility to pay

through mobile money provider. The Figure 2 shows that within that number, 80% of

adults claimed to be using a banking account or a mobile device in developed economies

while only 22% claimed so in low-income economies (The World Bank, 2017). Thus, it

is interesting that besides Scandinavia, the majority of countries with an incentive to shift

towards “cashless society” belongs to the group of developing countries, where the

inclusion of people into the system is much more difficult, problematic, and ultimately

inconvenient for the individuals.

15
Figure 2. Credit card usage, source: Global Findex Database (2017)

Still, the governments of such countries repeat that the world without cash would serve

mainly for the financial inclusion of unbanked people and the ease of payment usage.

Even the individuals from developed countries would face the challenges in the world

without cash. The society without paper money brings a huge threat of the individuals’

privacy because every transaction is transparent and traceable. Thus, the benefits to

individuals arising from “cashless society” are questionable, which confirms the fact that

the demand for cash is on rise. According to the research conducted by the Deutsche

Bank, the demand for Euro cash is increasing and the amount in the circulation was 3

times as much in 2016 as in 2003 (Mai, 2016). Currently, it counts for $4.200 per capita

in the USA and $3.400 in the Eurozone, as per the Figure 3 (Rogoff, 2016, p. 40). It is

highly unprobeable that every woman, man, and child in the USA own $4.200 in cash.

Even more interesting part is that the majority of the amount is held in large-denomination

notes, more specifically the equivalent of $50 and larger, which an ordinary citizen does

16
not carry very often. The data from 2015 shows that in the USA, large-denomination

notes create 84% of all paper money while in Eurozone 90% (Rogoff, 2016, p. 39). The

rise of cash appears even though the enormous number of alternative payment methods

provided.

Figure 3. Cash per capita, source: Rogoff (2016)

On the other hand, transparency brought by phasing out the cash could possibly help the

governments to collect taxes and decrease the tax evasions, which is inefficiently tackled

in the world with anonymous and untraceable cash. In other words, the governments

would have better control, over the businesses, individuals, and the economy as a whole.

The banks could be important beneficiaries as well especially because their main

competitor, cash, would be eliminated. In the following chapters, the advantages and

drawbacks to governments, individuals, and banks will be analyzed and evaluated.

17
 3.1 Why governments are in favor

3.1.1 Tax collection & Transparency

As discussed before, paper money is anonymous and untraceable. It does not bear the

name of the user, the address or any other sign, which would allow authorities to identify

the person if needed. As the money flow cannot be controlled, it incentivizes some

businesses or individuals not to comply with their responsibility of paying taxes to the

state where they belong. And when these individuals do not pay the tax on their incomes,

someone else needs to pay what the government needs. In this case, it would be a

trustworthy citizen bearing the burden. These businesses and individuals could be divided

into 3 groups. One which escapes the tax collection on purpose, hiding an enormous

amount of money by not reporting the income and hoping no one will ever find it out,

also known as the hidden or shadowed economy. The second one would be the one where

the net revenues are underreported. The third one, however, would be the one which may

not even realize that the specific amount of the money they are dealing with should be

taken by the state. To make a specific example, think about the mother hiring a friend as

a babysitter and paying in cash. The similar example would be a student hiring someone

for tutoring. Neither of them will most probably pay a fraction to the state. Sum all of

these categories and a huge “tax gap” is created.

“Tax gap” is defined as the difference between the taxes which were paid and taxes which

are still due. This is a gross “tax gap”. The net “tax gap” is the one that will, as per the

estimates, never be recovered (IRS, 2018). Internal Revenue Service published the federal

tax compliance research of “tax gap” for 2008-2010 in the USA. It estimated the gross

tax gap to be $458 billion and the recovery only $52 billion, resulting in $406 billion net

18
tax gap (IRS, 2016). The quantity of people in Europe escaping their tax responsibilities

is even larger, creating the tax gap of $1 trillion or higher (Rogoff, 2016, p.66). This

should not be much of surprise considering higher tax rates in Europe, which put more of

the burden to the individuals and increases their encouragement to escape it. One may

argue that even if the abolition of cash would help to fight the tax evasion, there would

still be the issue of tax heavens. However, professor Gabriel Zucman (2015) in his book

“The Hidden Wealth of Nations” says that taxes escaped through the tax heavens are only

a fraction of what really is missing in the governments’ funds. He claims that the loss is

around $78 billion for Europe and $35 billion for the USA. When the numbers by Zucman

are compared with the previous numbers by IRS, it is clear that the tax evasion not

counting in the tax heavens is a bigger problem for the governments.

And so, one of the main arguments why governments are in favor of cashless system is

that it helps collect more on the taxes or at least to be able to track the businesses and

individuals, which do not comply with their responsibility. The reasoning for their

argument is that the online transactions bring the transparency to the whole payment

system. Such transparency gives the governments the ability to control the money

movement. Many national governments, such as France, Italy, Belgium, Portugal, and

Poland already took the measures to reduce the “tax gap” and many other issues by

restricting the payments in cash as a complement to European framework. European

Commission published a study as a response to these measures in 2017 in order to come

out with an EU-wide level policy (EC, 2017). However, this limit might not be sufficient

as many of tax evasion cases concern small amounts, lower than the limit of those

countries. Also, EC argues that there are large tax evasion schemes, which did not depend

on cash usage (2017). This means they claim that the tax evasion does not depend mainly

19
on the presence of cash but on other elements such as the quality of institutions in charge

or existing regulations and policies. The research by Deutsche Bank develops this by

saying that the cash usage might facilitate the tax evasion but definitely is not the reason

that people are trying to avoid their responsibility towards the state. It adds that the

citizens’ willingness to pay taxes depends on their relationship with the state (Mai, 2016).

In other words, citizens are more likely to comply with tax responsibilities when they see

that the state is developing for the money they give to the national funds, that they get

better public services for themselves and their families, that the money is simply not

disappearing. Even in Sweden, the country where the cash is constantly decreasing, and

the government is trying to create first cashless society in the world, 88% of people

claimed they put high trust in cash (Arvidsson, 2017). However, the decreasing cash

usage indicates that Swedes also believe in their institutions and the correctness of their

decisions. Thus, the citizens’ trust in the system is crucial.

The paper by Institute and Faculty of Actuaries (Archord et al., 2017) presents the idea

that no clear connection between the cash usage and the tax evasion and therefore shady

economy exists, but it would be foolish to say that it does not exist. Mai (2016) says that

it is not the rule that the high level of cash usage correlates with the size of the shadow

economy. For instance, in Germany and Austria where cash is still popular among people,

the shadow economy is small. As mentioned already, the reason that people believe that

phasing out paper currency is crucial for the tax collection is that it brings the

transparency, the ability for the governments to see every transaction made. The

government would have the possibility to investigate any tax discrepancy. Transparency

is a popular phenomenon lately, both corporations and governments are forced to disclose

their information, books of account, salaries. The fact is that such disclosure is not really

20
working as a society would have wished. Jesse Eisinger (2015) states that sometimes it

can be ineffective or even counterproductive. He presents the example of the “terms of

service,” which are usually so long that every user clicks the “I agree” box without

actually reading it. If cash is phased out, the governments could have the possibility to

see the transactions without actually seeing it. Especially with the complex transactions,

it can be hard for the governments to track it. Every cashless society’s supporter is

repeating the transparency argument all over again, but no one can know for sure if such

a trend would really decrease the tax evasion numbers. Mai concludes that cash does not

directly influence the size of the shadow economy, but it would make it harder and more

expensive to participate in illegal activities, which could decrease the size of shadow

economy (Mai, 2016). And lastly, the governments are pushing the reduction or abolition

of cash policies in order to lower the tax gap while tolerating and granting huge tax

exemptions to large and powerful corporations, which are also much smarter at

innovating how to evade taxes than individuals. The tax evasion by corporations hurt the

economy more than the small amount evasions by individuals possibly caused by the

existence of cash. Clark (2017) shares his thought that what the cashless society really

does is that it facilitates the movement of the money from point A to point B. According

to him, this acceleration, the ability to move the incomes fast around the world without

anyone noticing it, prompts tax avoidance more than the cash-usage.

3.1.2 Illegal immigration

While it is not sure that the transparency possibly brought by the cashless society would

necessarily help the government to collect more taxes, it is highly probable that abolishing

the cash would help with the illegal immigrants in the countries. There were 11.3 million

illegal immigrants in the USA in 2013, which makes it 3.5 % of the whole population
21
(Passel, Cohn, Krogstad, & Gonzales-Barrera, 2014). The president’s Trump goal to build

the wall between the USA and Mexico in order to stop the illegal immigrants seems much

more struggle than the abolition of cash in the economy. The reason why illegal

immigrants can survive in the countries is that the employers can pay them off the books,

which also enables them to exploit their employees easily. Cash facilitates practices

which could be described as exploitative and predatory by employers towards employees

(Kornberg, 2017). The employers do not report their employees, neither pay taxes for

them. These employers make their firms more competitive and disadvantage other

businesses hiring only legal workers and properly paying for them. In other words, the

employer paying off books can offer the worker more on the paycheck as the tax and

other fees are reduced.

The lack of cash would leave the illegal immigrants and their employers without some

possibilities that the existence of cash offers them. It would become difficult for

employers to pay their cheap labor as illegal immigrants are unable to open the bank

accounts (Archord et al., 2017). Not totally impossible thanks to tools such as prepaid

cards but difficult and risky for both the employer and employee. Besides leaving illegal

citizens without money, the abolition of cash would also spoil their ability to cross the

borders by paying the smugglers to bring them. Rogoff (2016) comments that this has

nothing to do with the legal migration of poor people into advanced economies, which he

is in favor of. He recognizes the issue of world’s inequality as well as the fact that some

places or even whole countries could become unsuitable for living with a rapidly

changing climate. He thinks that the countries’ abilities to deal with illegal immigration

conveniently could incentivize the governments’ discussions regarding migration

policies. As presented above, even with the rising number of electronic methods of

22
payment, the demand for cash is increasing. The demand of illegal immigrants for paper

money is high on the list and increases the demand for cash a lot.

23
 3.2 The opposition of individual consumers

It was shown why some governments are trying to enforce society with no cash. But it is

clear that a very important part, in order for such society to function well, is the

acceptance of ordinary people. The main benefit presented to them is the convenience of

usage. No heavy wallets stuffed with paper money and coins, no counting, no dirty money

transmitting bacteria quickly, only simple plastic card or mobile app to pay for any

purchase. One could presume that it is a win-win situation but a problem occurs. It does

not necessarily need to be convenient for all of the people, especially the unbanked ones.

In other words, people who are not using the bank account would probably have issues

with adapting to the cashless system. Even if the government interferes with a solution

such as the provisioning of subsidies to increase financial inclusion, there is more. First,

the customers lose their privacy – the authorities would be easily able to follow the

trajectory of the card or mobile app with which the consumer is paying. Second, they lose

their choice. One thing is to pay by credit card because it is the preferred method of

payment for the customer and the other is to pay by credit card because the customer does

not have other option. In the world where cash still plays a role, the governments and

banks must be moderate with the policies and statements they are publishing because they

still need the popularity among people. If they make the usage of credit card or mobile

wallet unattractive, the clients will simply leave their banks by withdrawing all the money

and hiding their cash under the mattress.

3.2.1 Convenience

Coming to the grocery store, paying with a high-denomination note and confronting the

issue of the cashier not having smaller notes or coins to return back to the customer is

24
impossible in the society with plastic debit or credit cards. These cards have the ability to

pay for the specific and exact amount. When sharing a taxi with few friends, cash plays

a role as everyone can pay their fraction. When purchasing a new car, it is easier for the

customer to pay from an account than carrying the large sum of cash in the suitcase. While

travelling, the owners of the credit or debit card do not need to care about exchanging

money and they just withdraw the suitable currency from an ATM in the destination. On

the other hand, it might be more convenient for the person to use cash when buying a

package of chewing gum in the supermarket.

It would be wrong to say that one payment method is more convenient over the other.

Card is most probably safer for the individuals, as they do not carry an amount that can

be easily stolen with them. In case the card is stolen, it can be blocked through the bank

within few minutes. However, as per the study, the customers really are choosing their

preferred method to pay based on convenience, rather than other factors such as security

(Mai, 2016). In some cases, it is cash, and in some cases, they opt for an electronic

purchase. The cash supporters are usually presenting the convenience as the main benefit

for individuals even though it might be really inconvenient for them when one of the

payment options often used is taken away. As mentioned already, 1.7 billion people

around the world still do not use any account or mobile app to pay their purchases. This

means, their payments occur only with cash (The World Bank, 2017). For these people,

cash is, of course, more convenient.

3.2.2 Consumers’ privacy

The article 7 of the Charter of Fundamental Rights of the European Union says that

everyone has the right to respect for private and family life. The article 8 mentions the
25
right to protection of an individual’s personal data (Charter of Fundamental Rights of the

EU, 2000). The banks and other payment service providers with whom people have

accounts with, collect clients’ personal data and the information about every transaction

the clients make with the credit/debit card or mobile app, e-wallet, their salaries,

expenses, and more. They, of course, do that with the consent of the clients, which is one

of the conditions to create an account. However, the data must be processed as per the

regulations these service providers have (Ecorys, CEPS, 2017). This means that they shall

not use the data for purposes different than specified in the contract with the client and

outside of his or her consent. The misuse of such data has been observed in plenty of

cases. The EC paper (2017) mentions the case of Greek consumers who have been

harassed by debt collecting companies in order to collect the money they loaned. And a

dispute occurs. On one hand, the consumers clearly did not comply with their debt paying

responsibility. On the other hand, the information about the loan was shared to the debt

collecting companies without the consent of the consumers. The share of personal data of

the consumers violated the article 7 and 8 of the Charter of Fundamental Rights.

The EC paper (2017) notices another misuse of collected data and that is the usage of the

data for marketing purposes. In the world where everyone would pay in cash at the stores,

the retailers have no chance to track such purchases, they cannot see where the customer

lives, what is the last time he or she entered the store and how often he/she is shopping.

They cannot collect any data on the customers’ shopping habits. The only way to collect

such data, in order to be better at targeted marketing, was through surveys, subscriptions,

and other subjective data collection methods. But nowadays, when the usage of electronic

payment methods is increasing, the businesses such as Visa, Mastercard, and American

Express are launching so-called “market intelligence programs”, allowing retailers to

26
enter the data they are collecting (Clark, 2017, p.129). Like this, they are able to convert

their blindness, subjective surveys, and tough guessing into a detailed scheme on their

clients’ spending habits while making sure that the right client is always being offered

the product or service they want. The anonymous cash is still a solution for the consumer

who is aware of the data collection and wants to do something about it. Even if having

the account where the money is stored, the marketing influence can be decreased simply

by withdrawing money. This option would not exist in society without cash. “Money is

coined liberty,” is the quote that Dostoyevsky (1860-62) used in his book “The House of

the Dead” and is quite relevant in this case because paper money ensures the liberty of a

human by being anonymous and untraceable. The electronic version of money, tracking

every money transfer and leaving a significant trail, presents a threat to humans’ privacy.

3.2.3 The matter of choice

That society without cash leaves people without a choice is one of the weaker arguments

of the cashless opponents. Clark says (2017, p.27) that there is nothing wrong with using

electronic methods of payment when people choose to pay like that. Until we have the

free choice to use in the liquor store cash or card, it is fine. The liquor store is, in fact, a

place handling a lot of cash (Epstein, 2017). This means that even though buying alcohol

is not against the law in almost all of the countries, many people prefer to use anonymous

paper money. Clark (2017) does not agree with the government taking one of the options

from us. However, it would not happen for the first time in history. The anti-cash lobby

would answer that the slow movement from cash to credit cards is just a part of the

development. As was presented in the introductory chapter, money is a medium of

exchange and went from the barter through commodity money to paper money. With the

enormous evolution of technology, the launch of electronic money is logical. The

27
difference is that the previous forms of money were something physical that the seller or

buyer had in their hands and did not intervene in any of the categories above. They were

anonymous. Electronic money is the first medium of exchange bringing something

different, collecting customer’s sensitive data, tracking his or her purchases and therefore,

intervening the fundamental right of the person, like the right to privacy. Anyway, the

person also cannot choose if to drive the car on the right or the left side. There are rules,

which every individual should adhere to if not living on the abandoned island. People just

got used to the comfort of having the possibility to pay by both cash and card.

Meanwhile some think that the choice will take away the control over their finance, they

do not realize that it could happen with paper money as well. I would like to remind the

case of communists ruling in the Czech Republic when they were able to transform rich

into poor through the monetary reform in 1953, all within a week (Chalupecky, n.d.).

They have done so by recalculating the old money to new money with the ratio of 5 to 1,

but only when turning in up to 5.000 CZK. Up to 10.000, the ratio was 10 to 1 and this

logic continued. And what more, the rumors about the monetary reform provoked the

shopping fever within the society resulting in high spending and the rotation of money,

which of course the government wished. In this case, not even real estates and properties

were safe, everything was nationalized. Another example is the current situation of

hyperinflation in Venezuela. While others, such as Sweden, are turning towards cashless

with a strategic plan, Venezuela is doing it involuntarily, which is caused by many bad

political decisions by President Maduro (Seelke, 2019). The domestic currency, the

bolivar, is almost useless due to extreme inflation in the country. The banking authorities

are setting limits to the commercial banks on how much the individual can withdraw. In

South America, the cash in the circulation has increased over the last five years by an

28
enormous number of 61.9% (World Cash Report, 2018). And so, even though the cash is

still the king in South America including Venezuela, as the World Cash Report suggests

(2018), the citizens are limited to using it, which makes even the richest people poor.

These cases would suggest that it does not really matter which options for paying the

people have as the value of the medium of exchange is in the hands of authorities.

Especially in the era of economic crisis, people cannot protect their savings even if hiding

it in the mattress. The government decides what happens with people’s welfare or

poverty.

On the other hand, a different type of crisis, such as natural disaster, can occur. As

mentioned already, cash is extremely important when the infrastructure breaks down and

it becomes impossible to use the electronic methods to pay (UBS, 2018). Even bankers

and governmental people are humans and they need something to pay with. During the

earthquake followed by a tsunami in Japan on March 11, 2011, James Stepherd-Barron,

the disaster specialists interviewed one of the survivors, asking what he would have done

differently if he knew the disaster is coming. He answered that he would certainly have

packed good shoes, toothbrush and some cash (Stepherd-Barron, 2016). By saying this,

he aims to show that cash has presented itself as a life-saver in the times of crisis. When

the electricity fails for few days or even weeks, paper money serves the citizens to obtain

the main necessities to survive. This is where the idea of Rogoff (2016) comes in, saying

that the completely “cashless” society may have some flaws while “less-cash” society

brings the compromise for everyone. The reason he gives is that “less-cash” society offers

the availability of low-denomination notes that can be used for daily small transactions

but also during the crisis when it is impossible to use the electronic money.

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 3.2.4 Rich versus poor

Besides the difference between the approaches of governments and the individuals, the

disagreement whether to accept or reject the abolition of cash could appear also among

the individuals only. Specifically, the individuals from the higher-income groups and the

lower-income groups of people. According to Epstein (2017), the poor would be more

affected than rich because, putting simply, they use cash more often. This could be also

caused by the fact that poor do not have the access to electronic methods of paying in

many cases, as mentioned already before. It was shown that only 22% of individuals in

low-income economies have the possibility to pay electronically (The World Bank,

2017). Meanwhile in richer economies it is natural for the current generation to use

computers, mobile phones, the Internet and internet banking, the developing economies

are not catching.

To make a specific example, what was happening in India, starting in 2016 and continuing

in 2017, could demonstrate the situation of poor without cash clearly. In order to reduce

the hidden economy, counterfeit currency, terrorism in the country, and increase the tax

collection, the government of India announced on November 8, 2016, that the large-

denomination notes, specifically all 500 and 1000-rupee bills, will no longer be valid and

that they must be exchanged (Institute and Faculty of Actuaries, 2017). Modi government

introduced Digital India Programme. By the act they called demonetization, they removed

around 86% of cash from the circulation in the country where 97% of all transactions

occur in cash, where only 10% of Indians have done a digital payment at least once and

where 93% of laborers are paid off-the-books (Kornberg, 2017). The tries by the Indian

government, such as tax removal on point of sale machines, did not help the desperate

situation of the poor in the country as they lacked the access to the bank or the

30
connectivity. Only 53% of the Indian population had established a bank account while

the policy has been implemented and the percentage of smartphones users was even lower

(Gaonkar, 2018). Therefore, the promotion of mobile wallets was not for help. The

government still hoped such situation is short-term and that the demonetization will work

as they wished in long-term. The number of electronic transactions was rising. Once the

government saw to drop the Indian’s GDP by 1%, they slowly eased the limits on

withdrawing cash, which resulted in a slow decrease of e-payments as well. On March

13th, all limits on cash withdrawals were canceled (Institute and Faculty of Actuaries,

2017). In Sweden, the transition towards less cash builds on a long tradition and the

development was left to the market itself. The situation in India was clearly forced by the

authorities.

Poor are not the only group of people suffering by such change, the older generation is

the second one. Logically, as such spread of technology is a recent phenomenon, retired

and seniors have issues with adapting themselves into the digital society. Similarly to the

poor, they are cash-dependent and the cashless world presents the hurdle for them. The

governmental people living in welfare and with enough money to feed their families may

see the move towards the cashless world as a very positive move, without major problems.

However, the Indian case prompts that cash still plays a crucial role in the life of poor and

elderlies. And so, the authorities should be careful with the implementation of modern

and electronic methods of payment, considering all levels of the society and groups of

people. They should make sure that everyone will handle the transition before such

implementation not to leave millions of people without the ability to purchase basic needs

for themselves and their families. This means that the government needs to focus more

on increased financial inclusion.

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The governments argue by saying that the necessary financial inclusion of unbanked

people can be increased by accumulating the savings from the tax collection, which has

been discussed above. Higher financial inclusion of the population coupled with higher

financial and technological literacy flowing from the abolition of cash is the benefit for

both the individuals and the government. The governments would have a better overview

of the people living in their countries as the level of transparency in the society would

rise. Among the individuals, financial inclusion would promote the equality of people

because every man and woman would own a bank account, would have the possibility to

store their savings. In many developing countries, the governments are trying to foster

financial inclusion by skipping the credit and debit card usage and moving directly to

mobile wallets. M-Pesa, the service launched by Vodafone in 2017 in Africa, serving the

clients to transfer the money through the mobile device solved the problem of people not

having the bank account (Institute and Faculty of Actuaries, 2017). Though, it still does

not deal with the individuals who cannot afford such device.

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 4 THE ROLE OF BANKS

Besides of governments and individuals, the banks and baking agents play an enormous

role in the process of becoming cashless. Especially because they are the main institutions

providing the service necessary to live without paper money – they are managing

accounts and providing their clients with debit cards, credit cards and other electronic

methods of payment. The banks’ importance fosters their cooperation with the

governmental agencies. Both agents have to compromise and arrive to the common goal

and vision once they wish to implement the change towards cashless society and fight the

cash usage. Thanks to that, the banks and the governments become allies instead of

opponents. In Sweden, the age-long cooperation of banks, the government and regulatory

bodies enabled the creation of great financial infrastructure to start implementing the

cashless society (Arvidsson, 2017). On the other hand, cash is currently the biggest

competitor to the electronic methods of payment. By removing the cash from the world,

the banks would gain enormous power over the financial market as their main competitor

would disappear. But what more, the cooperation of the agents, like banks and

governments, in order to create the world without cash also removes the competition of

these agents. Arvidsson (2017) says, by presenting “The Competition Paradox,” that

every market works better if there is a competition. The sufficient competition arranges

for convenient work environment, quality products, better services, lower prices for the

customers, and more. Therefore, the benefit of better cooperation between country’s

important forces needs to be weighed against the risk that the weak competition can cause.

Banks are businesses. And the goal of the business is to make revenues. Higher revenues

are also why businesses like Visa and Mastercard favor the shift towards a cashless world

33
a lot. They know that by removing the option to pay by cash from the people, they would

be able to significantly increase their client base as well as the amount of money deposited

in the banks. In order to foster the increased usage of their services, banks are continually

introducing innovations, which facilitates the operations and makes it more convenient

for their clients. For example, the contactless payments without the necessity to enter the

pin code until reaching specified value allow the customer to make the purchase within

few seconds. While the client takes out a large-denomination note, waiting for the seller

to find and return the coins, the cashless transaction could easily happen three or four

times. But why such efforts? Because banking institutions may be the biggest

beneficiaries of all discussed before.

Visa’s promotional video shows why going cashless is the best choice for businesses like

restaurants, that it is safer, faster, efficient and time-saving (Visa, 2017). Even though the

banks present cash abolition as an advantage for the others, they do not mention the

benefits cashless world brings to them. First, banks do not need to fear about losing

customers, even if they are in financial crisis, as the customers do not have other option

than using the account. The client could be only taken over by another bank. Second,

because of such power over the people, they can basically charge anything they want,

apply any fees they like. And last but not least, the central banks can let the interest rates

fall below zero when, for example, they need to get financially stable after the crisis. The

following will describe those benefits in detail.

4.1.1 When the bank fails

In the cashless world, the clients of the bank would not have the possibility to leave the

bank by withdrawing the money and keeping it in the form of cash. On the 14th of
34
September, 2007 in the United Kingdom – long queues began to form in front of the

Northern Rock banks. People started withdrawing their savings as a response to the

announcement of the bank regarding their emergency situation and the need to go to the

Bank of England for an emergency loan (House of Commons Treasury Committee, 2007-

2008). The clients were scared of being impoverished because of banks’ financial crisis.

Such fear resulted in so-called “The run on the Rock”. The number of 50-pound

banknotes in the circulation has risen from 6,7 billion in 2007 to 7,5 billion in 2008 (Bank

of England, n.d.). These banknotes were not withdrawn in order to start criminal activities

or to escape taxes, as a cashless-supporter would probably claim. The banknotes were

taken out because of the broken trust between the clients and the bank. Some of the money

has been invested into the property, gold, etc., some of it has been deposited in another

bank, some fraction has been kept home by the owners. In order to calm the situation

down and stop all the banks’ clients to panic, the government came with the bail-out

system to compensate their clients for their savings; however, only to some extent. The

clients who had deposited more than 35,000 pounds in the bank would lose excessive

savings, according to the bail-out system (House of Commons Treasury Committee,

2007-2008). Such loss is the reason why these clients would choose to withdraw their

savings anyway. The point is, when cash disappears, people lose the possibility to run

away and they are being forced to leave their savings where they are. By becoming

cashless, the banks gain an advantage over their clients.

35
Figure 4. Percentage of transactions using non-cash method, source: Thomas (n.d.)

Figure 4 presents the percentage of transactions done by consumers that do not involve

paper money. Greece has only 2%, which prompts the low level of trust of consumers

towards banks. They went through the sovereign debt crisis and they see cash as a

security. This confirms once again that cash is the king during the crisis, which is hard to

observe in relatively calm period, when people’s savings are not endangered.

4.1.2 Negative Interest Rates & Fees

Cash is not the same as the money deposited in the bank because that money can be

manipulated through negative interest rates. It was mentioned few times already that cash

is king in the time of economic crisis. The same does not apply for banks. For them, the

cash is the worst in the time of economic crisis. The reason is that they are not able to

apply negative interest rates because cash pays always at least zero interest. Falling below

36
zero, in the world where cash still exists, would cause the trouble for the banks in the

sense that people would prefer to withdraw their savings and store them in their safes

back home. Rogoff (2016) in his book presents the possibility to set negative interest rates

as one of the main benefits of phasing out paper currency. He claims that lowering the

interest rates below zero would help the world to overcome the crisis sooner and recover

easier. He presents the example of 2008 financial crisis and suggests that US Federal

Reserve lowering interest rates to minus 5 and European Central Bank to minus 2 to 3

would be optimal monetary policy taking the countries out of a bad economic situation.

He continues by saying that lowering interest rates to minus while the inflation is zero is

the same thinking as lowering it to 5 percent when the inflation is 10 percent.

From an economic point of view, Rogoff makes a point and suggests a logical strategy to

survive the financial crisis and recover the loss at the shortest time possible. From the

majority individuals’ point of view, it is suffering personal loss for someone else’s

mistakes, not being able to protect themselves by withdrawing cash. They would be losing

money because of irresponsible borrowers and fraudulent banks somewhere in the US.

Also, Clark (2017) adds that such act could lower individuals’ careful considerations of

loans and therefore, provoke risky behavior. For individuals, having 5 percent interest

rate or minus 5 percent is not the same. Rogoff is clearly considering the economical part

while forgetting about the emotional one, disregarding the reaction of individual

consumers. For sure, individuals’ trust and loyalty to the system is an important aspect of

a well-functioning society.

The Czech economist Hana Lipovska is going far to the future by considering many

possible outcomes. She says that negative interest rates set up by banks would increase

37
the consumers’ expenses. She assumes that the majority would opt for spending the

money instead of letting it slowly disappear on their bank accounts. Lipovska (2017)

argues that for the economy, savings are important as they lead to investments and

investments are necessary for technological development and stable economic growth.

Her very detailed assumption presents a serious threat to the future economy if the

negative interest rates are enabled.

The banks charge high fees for international money transfers. The client usually does not

disregard the option because travelling to the place where the money receiver lives would

cost more than paying the fee. The institutions are taking the money for the service they

are providing the client with. Locally, the banks still cannot afford to charge colossal fees

when two can meet and make the transaction in cash. Again, the banks would be in the

advantage over their client in the cashless society where the clients would not have the

option to use paper money and they would need to accept fees the bank sets for them.

4.1.3 Revolut

The British start-up Revolut comes with the idea that might be revolutionary in the era of

becoming cashless and bank-dependent. Revolut is a firm offering banking services. It

allows the clients to open an account and to transfer money within 29 countries for now.

The cards, set up online within few minutes, are connected to bank accounts but solely to

be able to top up. Otherwise, the system is not dependent on the bank. The user can opt

between the basic free account or the paid premium one offering even more of the

advantages. Their main benefit is the lack of fees for withdrawals or money transfers,

even the international ones. Additionally, they are offering the interbank exchange rates.

Considering the transaction takes the user only two clicks and few seconds, it also solves
38
the issue of splitting bills when, for example, sharing the taxi with friends (Revolut, n.d.).

While now the card is presented as the perfect tool for travelers, in longer-term Revolut

can serve as the competitor to the old-fashioned banks, decreasing their power over the

users once cash is restricted, and inspire other entrepreneurs coming out with similar

inventions.

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 5 CRIME

Another controversy of cashless supporters and opponents is if the paper money decreases

or increases the criminality. On one hand, the street criminals lose the physical money to

steal on the streets. The material things they could steal for personal purposes only as

they cannot exchange something they stole for cash. On the other hand, cybercrime, the

attacks on bank accounts, funds and any type of online money are rapidly increasing.

What matters is if the advantage of reduced street crime brings better benefits to society

than the wrong caused by higher cybercrime.

5.1 Cash – the fuel for criminals

Cash is the fuel driving criminality (Wright, 2016). The reason has been mentioned

already – it is anonymous and untraceable. Once cash leaves the bank, it is almost

impossible to get it back. And what more, cash can be easily stolen. The amount can range

from few dollars when the pickpocket robs the old lady on the street to millions of dollars

when the group of criminals implements a well-thought plan of a bank robbery. Swedish

Vastberga Heist case represents the latter. On September 23rd, 2009, the helicopter

landed in Swedish depot and took 6.5 million dollars (Heller, 2013). Although the robbers

were later caught, the money never came back. The case observed the biggest

disadvantages that cash presents – anonymity and intractability. Even though the

enormous security protections were on place, the criminals still found their way in,

without major inconveniences. That is also why Rogoff suggests especially the reduction

of big bills. It is much easier to transfer a large amount of money in 500-euro notes

without anyone noticing than transfer the same amount in five-euro notes (Rogoff, 2016).

In a cashless society, robbers would be surprised by the empty depot. Mai (2016) confirms

40
that the reduction of cash decreases the number of larcenies, burglaries, and assaults.

Wright (2016) agrees by mentioning that the implementation of the EBT program in the

USA, the move from the welfare checks to debit and credit cards, arranged a 10% drop

in the street crime. 10% is the number that the former tries to decrease the street crime,

like the amelioration of people’s social conditions, has never reached. It is also important

to notice that the program removed only some part of the cash. The drop would be

probably much higher if phasing out cash altogether.

Other crimes caused by cash, according to cash opponents, are terrorism, money

laundering, bribery, drug dealing. Theoretically, the argument makes sense if considering

the cash’s ability to go from one to the other without being noticed. However, similarly

to the case of shadow economy mentioned above already, the reduction of cash may make

these illicit activities harder to perform, not totally erase them. On the other hand,

criminals will probably never go totally away and will evolve other methods, systems,

and inventions to be able to continue with such activities. As the world develops, it goes

parallelly with all of the industries as well as the evolution of human capital. In other

words, the everyday development incentivizes criminals to think differently, to come with

modern ideas, alternative ways to continue with the activities they are making their living

on. However, it might take a while and might need a certain level of skills and knowledge

of an online world for the criminals to develop new ways of robbing and stealing – the

cybercrime.

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 5.2 Cybercrime

While the street crime reduced in Sweden, the country closest to becoming cashless, the

cybercrime intensified. Wright (2016) present in his talk that reduced street crime and

increased usage of advanced methods of payment almost doubled the online crime. It is

possible that the level of cybercrime would raise even though the existence of paper

money, simply because technological development continues every day. Or more of the

criminals realize the size of their crimes in the cyber world in comparison with

pickpocketing and stealing on the street.

Figure 5. Less cash crime in Sweden, Figure 6. Rise of online fraud in

source: Mai (2016) Sweden, source: Mai (2016)

Figure 5 shows that street crime together with robberies are decreasing with the reduction

of cash in the country. Decreased crimes are all connected to cash usage – bank robberies,

security van robberies, currency counterfeits. The decrease of cash-related crime also

leads to better security for people operating with cash (Kall & Lagerkvist, 2015). The

42
reasoning for this is that those people do not carry cash with them and therefore, the

robbers have nothing to rob. The other figure (Figure 6), recording the same time slot as

the first one, shows how card deceptions are increasing parallelly with the cash decrease.

While bank robberies almost disappeared, fraudulent card transactions almost tripled in

the same period.

It was discussed that the banks are the main proponents of the cashless economy as they

are receiving the major benefits of it. Commercial banks are still closing some of their

branches and becoming more and more in favor of technological progress. However,

lately, Europe’s central banks are slowly changing their minds by realizing the

tremendous impact of increased electronic methods of payment on the financial system.

Cerulus and Contiguglia (2018) discuss that central banks are getting anxious and will

lobby for keeping cash in the system. There are several reasons for that. The governor of

the Australian National bank is worried about situations like the energy black-out, where

the electronic methods of payment would be disabled. In this case, the suggestion by

Rogoff, to phase out only large-denomination notes and keep the small ones for

emergencies, would still work. The second and more threatening reason is the rise of

cyber-attacks. According to Petra Hielkema, the director of payments at the Dutch Central

Bank, says that the bank is being attacked every single day (Cerulus & Contiguglia,

2018). In order to fight back, many European banks are designing ways to secure their

technologies and the stability of their financial system overall. One of those ways is the

implementation of so-called “stress tests” to evaluate the banks’ cybercrime immunity.

With the ameliorated cyber criminals’ skills, also security systems are developing. The

director of Belgium’s central bank, Mr. Hermans, insights into the future, saying that the

era of 4-digit codes to enter our account is over and that people will have to remember

43
more complicated code set-ups (Cerulus & Contigug, 2018). The security practices must

become stronger and more efficient to prevent increasing cyber-attacks.

44
 6 Insight to the future

It should be clear that there are many advantages and drawbacks of a cashless society

after reading the above arguments. Both opponents and proponents have their truths. I

can nothing but agree with the idea presented in the book “The Curse of Cash” by Kenneth

Rogoff, which has been referred to throughout the study. Rogoff (2017) suggests

removing the large-denomination notes and keep the small denomination-notes for

foreseeable future or forever. The reduction of large notes, Rogoff (2017) says, would

allow ordinary people and cash-dependent people to continue using cash while making it

harder for tax evaders and crime operators to function. Throughout the study, Rogoff’s

proposal has been mentioned. The proposal responds the majority of arguments made by

cashless opponents. He admits that the cash reduction would not solve the issues of tax

avoidance and crime totally, but it is a good and non-extremist starting point for a change.

Additionally, Rogoff reminds that the markets must be cautious about moving towards

less-cash society and take into consideration the quality of financial institutions and if the

necessary financial infrastructure is available. The step by Indian prime minister in 2016,

announcing the reduction of cash in the country basically overnight was not an ideal move

towards functioning less-cash society, according to Rogoff’s study. The reasoning behind

this is that gradual implementation of the change avoids the dissent and helps with the

people’s adaptation (Rogoff, 2016, p.92). European Central Bank announced on 4th May,

2016 that the banks ends producing 500 euro notes due to its facilitation of illicit activities

(ECB, 2016). The act by ECB gives hope to the Rogoff’s idea and the vision of less-cash

world with less criminals and better financial inclusion.

45
Whether the population likes it or not, authorities are the ones deciding about the future

of this world. Most likely, there will not be some kind of referendum about removing,

reducing or keeping the cash, but the government decides what will happen to the future

of money, giving the public no other chance but to accept it. The study prompts that the

enormous pace with which the technology develops will force the reduction and in the

longer run the abolition of cash, moving to the next step in the evolution of money. The

proposal for the governments, emerging from this paper, is to ensure that the potential

transition period from cash to cashless will happen gradually, will include all of the

individuals, and will be cautious about the basic rights of the individuals such as privacy.

If complying with all of these conditions, the transition will happen easily.

The governments and the people in charge should guarantee that no individual will be left

out from the new, modern society. To guarantee that all of the individuals of the society

are involved, Kall and Lagerkvist (2015) suggest following the process of translation by

Michel Callon in his paper “Some elements of a sociology of translation”. Callon presents

four stages for appropriate implementation of the public to the new system. The four

stages are problematization, interessement, enrolment, and mobilization (Callon, 1986).

The first element, problematization, consists of identifying different actors in the society

and how the change influences them. During the second one, interessement, some actors

should convince the others that their interest are aligned. In our case, the banks and

governments should convince individuals that the shift is done in their best interest and

explain how they can benefit from the shift. Enrolment, the third element of the process,

is closely connected to the second one. The researches confirm that if the interessement

is successful, it results in proper enrolment of all the actors. And what more, this step is

crucial as it supports the belief of the actors in the system, its acceptance, and

46
disseminations (Kall & Lagerkvist, 2015). The last part of the process, mobilizations,

should ensure that all of the actors act accordingly. In other words, all of the individuals

and members of the society should be knowledgeable about and confident to operate

within the new system. Without mobilization, the new society cannot function. The four

stages by Callon can help the governments with practical implementation of the cashless

society. The proper implementation will ensure the inclusion of every society’s member.

The society is balancing between what the authorities want and what the people are

willing to accept. The future of organizational stuff within the countries is mostly in the

hands of the governments but the power of people should not be undermined. People are

the ones who forced communists to leave the government of the Czech Republic simply

by taking keys out of their pockets and raising them over their heads. Governments are

decision-makers, but people allow the decisions to function. In order to implement a

functioning change, the authorities must ensure that people trust and accept the new

system. The governments must establish robust policies and rules of the cashless society.

Mainly, they should focus on the increase of advantages and the decrease of

disadvantages affecting individual consumers if the cash is driven out of the economy.

Considering the importance that cash symbolizes for people, the authorities need to justify

its abolition by the creation of public advantages. The governments should guarantee the

privacy and freedom for their people. The individuals will not put their faith in the system

if their bank accounts are frozen only because they are suspicious for some reason,

unknown to them. Or if they notice that the online platforms are offering them products

and pricing clearly based on their shopping habits. If the authorities want the people to

shift towards cashless payments, they need to provide them similar features as cash offers

them. Once governments start focusing on the advantageous aspects of the cashless

47
society for individual consumers, they make themselves, the banks, and individual

consumers balanced in the new society. Thus, the benefits will be equally spread.

48
 7 Conclusion

The purpose of this study was to explore the benefits and drawbacks of the cashless

society with the main focus on the governments, individuals and the banks individually.

The paper intended to highlight the most important issues with removing paper money

and moving towards electronic methods of payment while decreasing cash-usage. The

study showed that people’s payment habits are changing continuously throughout

history. Thus, it is not much of surprise that the current huge technological development

is followed by an innovative method to pay for purchases. The paper challenges

different points of view and thought about different perspectives of a world without

paper currency. It discussed why governments and banks are usually the proponents of

the new society and why individual consumers may oppose.

The study concluded that the governments together with the banks receive the majority

of benefits, unlike individual consumers. Through the efficiency of abolished cash,

uncertain with regard to tax collection, the governments would obtain control over the

whole financial system and the transparency of every transaction made. The

transparency would make it harder for tax evaders, criminals, and fraudulent people to

operate and easier for the authorities to search for them. The banks are in particular the

biggest beneficiaries because of the loss of their biggest competitor – cash. On the other

hand, the individual consumer ends up in the cashless system with no privacy and no

choice. Additionally, the poor and older individuals have issues becoming involved in

the cashless society because of their limited technical knowledge and skills.

49
It would be harsh to conclude that the benefits of becoming cashless overweigh the

drawbacks of it. However, the study presented many arguments defending both the

positive side and negative side of a world without cash. These arguments can serve for

individual consumers to become better informed about the very contemporary topic and

make themselves ready for the potential shift toward less-cash or the cashless society.

Additionally, the points can serve for the authorities to challenge themselves and

subsequently be cautious with their decision-making processes. As the studies have

shown, individual consumers are the ones receiving the majority of disadvantages coming

from the implementation of the cashless world. Therefore, the governments need to make

sure that the benefits focused on individuals are equaled to the benefits of everyone else,

like banks and governments.

50
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