A cashless economy is one in which all transactions are done using electronic substitutes of physical cash, such as credit and debit cards, e-banking, or virtual wallets. In a cashless economy, there are no bank notes or coins in circulation.
Many developed countries have already converted their systems to a cashless economy. Sweden is one of the best examples with 99% of transactions conducted electronically. Some companies are testing new technologies and revolutionizing the shopping process. For example, online giant Amazon has already opened its first grocery store without a checkout section. Cameras and sensors detect the items that were taken and charge them to an account, eliminating the queues at checkout counters.
Some benefits of a cashless economy are:
- A cashless system does away with the cost of minting, storing, securing and transporting hard cash. Heists and bank robberies will be a thing of the past.
- For an individual, there is reduced risk of cash getting lost or stolen. This is particularly important while traveling, as a credit or debit card can easily be blocked and the money secured, unlike physical cash which once lost is lost.
- The biggest advantage is the speed and ease of transacting. There is no need for queues at banks or ATMs, and transactions can be done 24/7, at weekends and on public holidays without a time or place constraint.
- For businesses, the size of the market increases phenomenally. Shop size and location are no longer limitations, and a very large number of customers can be served at one time, any time.
- A record of past transactions can be easily viewed. This helps in keeping a track of spending and managing budgets.
- The government can spread its tax net further and more effectively as taxes can automatically be deducted at every step of an electronic transaction without the option of evasion.
- In many countries, there is a parallel economy that operates outside the banking system. This economy involves financial crimes such as tax evasion, fake currencies, terror financing, money laundering, etc. and generates what is known as “black money”. In a cashless economy, there is no place for money outside the official economy as every transaction is traceable.
However, like every system, a cashless economy has its disadvantages too. Some of them are:
- A cashless system is prone to cyber-attacks like hacking. There have been several scams in which debit and credit card accounts have been hacked and millions siphoned off. There is nothing like a 100% fool-proof system and you can never be sure who is looking at your data.
- There is no transacting fee in a cash transaction, while a cashless system basically works on a transacting fee, making products and services more expensive.
- Poor and uneducated people without bank accounts and internet access will be left out of this system.
- The system encourages monopolization and creates giants like Amazon which will destroy small and local businesses like the corner grocery shop or bakery.
- Governments can abuse the system and extort taxes arbitrarily and unreasonably at any point.
Despite these obstacles, the world is moving inexorably towards a cashless economy and every country, willingly or unwillingly, will have to develop systems to embrace it.