The End of Cash?

Do we still need cash? Humans have used all sorts of things as stores of value — rare metals, strings of shells, even jugs of whiskey. Over time the objects have become more ephemeral, from coins to paper to digital forms. Economists see great payoffs in a cashless society: lower costs for businesses and new tools to manage economies, stymie tax evasion and fight money laundering. Critics see an erosion of privacy, frightening new powers for governments and another sign of widening inequality. Central bankers, meanwhile, worry about losing control of the supply of money to digital networks like Facebook.

In the U.S., debit cards first beat out cash as the top way to pay in 2018, according to a Federal Reserve survey. As the coronavirus pandemic spread in early 2020, some merchants in Seattle and Sydney tried to stop accepting cash altogether, calling it unsanitary. (Some U.S. cities have made cashless stores illegal to prevent discrimination.) Still, fear of contagion could accelerate the general trend to more digital payments, according to the Bank for International Settlements. More than 75% of adults in Kenya use the mobile-wallet service M-Pesa, for paying bills or getting paid themselves. China’s central bank is already rushing to mint its own digital currency for a country where even street-food sellers in small towns will prefer to scan a QR code on a mobile payment app such as WePay or Alipay than make actual change. A credit-card consortium is working to extend the system globally. In most developed countries, however, the value of cash in circulation has risen since the financial crisis of 2008-2009 along with the number of digital payments, suggesting cash (in large bills) is being increasingly used as a store of value in uncertain times, especially with rock-bottom interest rates on savings accounts. Despite the growth of digital wallets like Paytm, most Indians still rely on cash, as demonstrated when the government in 2016 suddenly replaced the larger bills that made up 86% of the cash there with new ones, aiming to curb “ black money.” The resulting currency shortage was so bad it cut into economic growth.