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Abu Dhabi, UAEWednesday 20 June 2018

Is a cashless world close at hand?

Notes and coins continue to fade from wallets, we weigh up the pros and cons

Mobile payment systems such as Alipay are one of the reasons cash use has fallen globally. Bloomberg
Mobile payment systems such as Alipay are one of the reasons cash use has fallen globally. Bloomberg

If you ask someone to draw you a picture of some money, they will probably produce a sketch of a note or a coin. We still think of money in terms of those grubby bits of paper and metal that we carry in our pockets, purses and bags; indeed, figures suggest that despite the UAE’s rapid adoption of digital technology, 75 per cent of the economy is still cash-based.

Across the world, however, things are changing. As payments shift across to digital formats – card transactions, bank transfers, smartphone apps – money is becoming a more abstract concept. Rather than being represented by hard cash, our wealth is denoted by figures on a screen. Now, when we give someone some money, nothing physical changes hands.

In his book How To Speak Money, John Lanchester refers to the “deep weirdness of money in its modern manifestation… [it’s] mainly an act of faith, an act of credit, of belief.”

Convenience is king

In truth, money has never really been about notes and coins. This is demonstrated perfectly by the citizens of the Micronesian island of Yap, where limestone tablets called Rai, weighing up to several tonnes each, are the currency. The Rai never move; changes of possession are just agreed between parties and remembered, creating an ever-changing ledger of ownership that’s rooted in oral tradition.

Modern money, meanwhile, consists of millions of digital ledgers that are updated swiftly and seamlessly across the internet. So fast, in fact, that it makes cash look positively old hat.

Use of cash has fallen across the world. ATM usage in Australia has slumped to its lowest level in 15 years. Sweden is well on its way to becoming cashless, with more than half the nation’s banks no longer allowing deposits or withdrawals of cash. Restaurants in urban centres of the United States have started introducing “no cash” policies.

In the UAE, the government’s Vision 2021 project has prioritised a transition away from cash, with apps such as Emirates Digital Wallet, Samsung Pay and Apple Pay replacing dirham notes.

The benefits to consumers for rejecting cash are regularly stated by businesses promoting the digital alternatives: cash is easily lost or stolen, its hygiene questionable, its ecological footprint significant – and, more importantly, it’s annoying to use. In a world where convenience is king, cash, we’re told, is holding us back.

Uncertainty about a cashless society

In advertising campaigns, Visa refers to the “confidence” and “liberation” that digital payments bring. Indeed, in an interview with US TV network CNN, Visa’s Jack Forestell talked of giving people the “freedom from carrying cash”. However, as is so frequently the case in a digital age, the convenience we seek can come at a price. Campaign groups opposed to a cashless society have been quick to voice their concerns about privacy and the loss of control over our own financial records. Even the governor of the Swedish central bank, Stefan Ingves, has expressed his uncertainty about a cashless society, telling The Guardian: “Most citizens would feel uncomfortable to surrender these social functions to private companies.”

For the marketing and advertising industry, access to spending data is becoming invaluable, as it allows them to target their messages with ever greater accuracy.

This loss of control, according to cash advocates, also extends to security; yes, we might be a bit negligent from time to time in care of our notes and coins, but when we’re denied access to our money because of malfunctioning or hacked online systems, we become completely disconnected from what is rightfully ours.

There’s an argument that a move to cashless is discriminatory, that the poor and the elderly tend to be excluded from new systems. There’s also evidence that we tend to be more frugal with cash and more spendthrift with digital; in other words, in a cashless society, we’ll spend more money.

Who is fighting on behalf of cash?

Businesses, of course, are delighted to take that money, and many of them are happy to promote non-cash alternatives to facilitate faster, more extravagant spending.

In the US, incentives are under way to encourage businesses to stop accepting cash, with Visa offering 50 restaurants US$10,000 (Dh36,731) each if they were to go cashless. Doing so, they were told, would slash the administrative costs of counting, transporting and banking cash, and reduce the risk of loss and theft. But a report in the New York Times at the end of last year showed many consumers expressing incredulity when their legal tender was refused. It led many to ask: who is fighting on behalf of the loyal users of notes and cash?

It’s certainly not the state. In the UAE and beyond, governments are keen on a switch to cashless for very good reasons. The link between cash and crime is well established; indeed, over the years, crackdowns on illicit activity have led to the withdrawal of large denomination notes from circulation in many parts of the world including Europe, US and Canada – and most recently in India, where the 500 and 1,000-rupee notes were scrapped overnight in late 2016 in a drive against corruption.

The cash economy is also synonymous with tax avoidance; authorities can’t keep track of it, and those keen to avoid paying taxes know this all too well.

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Read more:

All you need to know about digital wallets in the UAE

Central banks should study digital currency risks and rewards, BIS says

World Government Summit: Where does the future lie for Bitcoin?

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Thirdly, a cashless economy can actually give governments greater economic power by allowing them to set interest rates below zero. With the value of savings being eroded by those rates, and with the option of withdrawing hard cash removed from the equation, people would effectively be forced to spend their own money.

But in times of natural disaster or civil unrest, cash becomes critically important – almost society’s safety net. In the wake of Hurricane Maria last October, when Puerto Rico lost all electric power and digital payments were impossible, the US Federal Reserve had to fly out a planeload of cash simply to keep the country functioning.

Cash is undoubtedly cumbersome, antiquated and restrictive, but its presence is reassuring. We know where we are with cash. And while a cashless world may streamline and speed up the way we live, our affection for notes and coins may take a while yet to shake off.