The Contactless Economy
Is a cashless society possible and is it desirable?
A cashless society is clearly possible. Sweden is approaching that point with barely 1% of the value of all payments made in their economy using coins and cash. Many shops now do not accept cash which can block out cash users such as the elderly, tourists and immigrants. Many of the poor are unbanked so they will be hurt the most. The shift to a cashless society has come at a time of more advanced, portable technology which is allowing even market traders and homeless people to accept payments in Sweden. Online payment systems are also experiencing a renaissance including PayPal and Swish which 50% of people use in Sweden; these systems allow customers to send money securely to anybody else with the app. The next question is whether a cashless society is desirable?
As with most technology credit cards bring more convenient, quicker payments especially with the advent of contactless. A restaurant chain called Sweetgreen says cashless transactions are 15% faster. This would represent a remarkable increase in productivity especially since the retail sector is a large part of our economy (18% in the UK). There would also be lower costs incurred from robberies or security costs because a cashless society requires no stores of money so there is nothing for criminals to steal. However, I believe the biggest benefit would be the elimination of the informal economy. Any criminal activity which involves the use of cash eg drug sales, theft or money laundering would experience a significant blow because if they used a cashless system all transactions could be tracked. As part of this tax evasion through cash in hand payments often seen in the construction industry would be avoided. This would increase tax revenues while also creating a fairer system. Although the ingenuity of the criminal classes should not be underestimated so it cannot be assumed a response to this will be discovered.
However, while successful in Sweden, there could be some logistical problems if the system was scaled up in other countries. Such a low percentage of traditional payments in Sweden is only possible due to their infrastructure, small population and remarkably low corruption levels. If people are excluded from making payments consumption declines in an economy and people cannot get the goods and services they need.
The biggest problems concern privacy and security. With all payments being traceable there is a worry that data mining could give firms a detailed profile of their customer. However, as with most privacy concerns, this is largely unimportant because the profile that a company could build would contain little significant information. A more credible threat is that posed by cyber attacks. If we become dependent on a technological system for all payments in our economies and there is a cyber attack, or for some other reason the technology has a fault, our economy would crumble with people unable to make any purchases. No doubt the government would have to intervene and provide emergency aid. On an individual level the risk of theft may not decrease if technology makes money more vulnerable and the shadow economy may not be eliminated if other untraceable methods such as Bitcoin are used.
The government would see multiple benefits. Firstly, money would be impossible to counterfeit since it has no physical form and the tax base would increase from less tax evasion and money laundering. However, no doubt people will find other ways to store money for illegal purposes such as assets like property, antiques, gold or silver. It would also be easier to enforce a transaction tax, once again boosting the government’s revenue.
If a cashless society brings faster, more convenient payments everybody benefits from greater spending in the economy. However, there is a risk that debt rises especially as people are less conscious of their spending when using credit cards. The benefits are greater for governments, consumers and companies but the real question is whether such a system is scalable to the whole economy and whether it is stable, or will the fickleness of technology lead to its collapse.