Why Eliminate Cash?
Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking. Transactions using digital money reduce costs and create transparency in an individual's spending and savings habits.
Key Takeaways
- Cash can play a role in criminal activities such as money laundering and tax evasion.
- Using digital money prevents the transfer of physical money, and all transactions are handled using computers and the internet.
- In the United States, any financial institution that receives a cash deposit of more than $10,000 must report it to the IRS, making tracking and tracing illegal activity easier.
- The Federal Reserve has been exploring the use of a Central Bank Digital Currency (CBDC).
The "War on Cash"
In 2016, the European Central Bank (ECB) eliminated the production of its €500 notes to curb fraud and money laundering. The note was the second-largest denomination across the euro currency zone, and the ECB claimed that it was the banknote of choice among criminals. At the time of the ECB's announcement, the €500 bills in circulation represented one-third of all the euro-denominated cash outstanding.
Since 2016, global policies have been implemented to thwart the use of cash in favor of digital currency transactions. In the United States, any financial institution that receives a cash deposit of more than $10,000 must report it to the IRS, making tracing illegal activity easier.
Promoting and tracking digital transactions amounts to a war on cash. Digital money is instead promoted because it keeps cash from being used. Transactions are handled by computers via the internet rather than passing through anyone's hands. Critics argue that limiting the use of cash and forcing individuals to pay through banks or credit card companies compromise financial privacy, prevent interest accumulation on saved cash, and limit profits of small business owners who often rely on cash sales.
Limiting Cash Savings
Because hoarding cash usinglarge valued notes is easy, a central bank may implement a monetary policy such as a negative interest rate policy (NIRP). A negative interest rate policy (NIRP) occurs when a central bank sets its target nominal interest rate at less than zero percent to discourage cash savings and promote spending. Limiting cash savings may also reduce bank runs during financial turmoil, such as the 2007-2008 financial crisis.
CBDC and Cryptocurrency
In the United States, Federal Reserve notes or physical currency is the money available to the general public. However, to keep up with advancements in blockchain and cryptocurrency, the Fed has been exploring a Central Bank Digital Currency (CBDC). Managed by the Federal Reserve, a CBDC would allow for digital payments and tracking of transactions and provide the safest digital asset available to citizens with no associated credit or liquidity risk.
In 2024, more than 130 countries have explored using a Central Bank Digital Currency.
Governments that introduce a CBDC enable a war on cash and cryptocurrency. Cryptocurrenciesare virtual currencies and individual monetary units, convertible into fiat currency at a variable rate determined by supply and demand, but their use and value are not monitored or guaranteed by any agency.
Will CBDC Replace Cash?
Many countries are researching and developing CBDC programs. Developed nations have already begun transitioning away from physical cash, so it's not unrealistic to believe that CBDCs will soon replace it.
Is CBDC Coming to the US?
The Federal Reserve is researching CBDCs for use in the U.S. but has not announced any intentions to release one.
Is CDBC a Cryptocurrency?
CBDCs use many of the same concepts as cryptocurrency, but they are not cryptocurrencies. A CBDC would be issued by a centralized government agency and recognized by a government as legal tender, while cryptocurrencies are not.
The Bottom Line
A "war on cash" is defined as the use and promotion of digital currency. Cash is often traced to criminal activities such as money laundering and tax evasion. Using digital money creates a data trail as all transactions are handled using computers and the internet. As of April 2024, many countries, including the United States, have been exploring the use of Central Bank Digital Currency (CBDC).
FAQs
Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.
Is cash going to be phased out? ›
This author says that's a false narrative. If it's been a long time since you pulled out actual dollars and coins to pay for something — here's a conversation for you. It might seem like cash is slowly becoming obsolete. But, Brett Scott says it's a false narrative that we're all pining for a cashless society.
Why shouldn't we get rid of cash? ›
For instance, using cash instead of credit or debit cards may help keep some people from overspending, because you can see how little is left in your wallet after every purchase. In short, getting rid of cash would impose hardships on society's most vulnerable people and could jeopardize our privacy.
Is the United States going to a cashless society? ›
The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022.
What are the dangers of a cashless society? ›
The downsides of going cashless include less privacy, greater exposure to hacking, technological dependency, magnifying economic inequality, and more. Credit and debit cards, electronic payment apps, mobile payment services, and virtual currencies in use today could pave the way to a fully cashless society.
Why are they trying to stop cash? ›
Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.
How long until cashless society? ›
Physical currency isn't becoming obsolete any time soon, so it's important to weigh up your options before deciding to go fully cashless in 2024. Ensuring you can accept some cashless payments though, is essential to keeping with today's trends and customer expectations.
Who would suffer in a cashless society? ›
Cashless society: disadvantages
Elderly people may be less comfortable with tech and less able to make the switch from physical currency. Rural communities could also be left vulnerable, because of poor broadband and mobile connectivity. People with low income or debt tend to find cash easier to manage too.
Is the US going to a digital dollar? ›
U.S. President Joe Biden ordered officials to look into a digital dollar in 2022 but it has become a divisive political issue with Biden's Republican rival in this year's U.S. election race, Donald Trump, vowing not to allow it.
Are there any cashless countries? ›
Sweden, the first European country to introduce banknotes in 1661, became the world's first cashless society on 24 March 2023. Finland and the UK are top–ranked to become cashless societies as well. Poland, on the other hand, has scrapped plans to limit cash payments to ensure freedom of choice.
“China is one of the top countries for using cashless payment systems, but penetration is not 100%,” says Sara Hsu, an associate professor at the University of Tennessee, specialising in supply chain management. “Elderly Chinese still often prefer to pay with cash and some struggle with using mobile payments.”
How do you prepare for a cashless society? ›
Three steps for banks to prepare for a cashless world
- Invest in integrated payment solutions to help meet merchants' digital-first needs. ...
- Expand to adjacent areas to provide more “money management” capabilities. ...
- Explore the viability of new payment flows.
Explanation: If cash is totally discontinued, the society or the region will become digitized, which means transactions are made online.
Why is getting rid of cash a bad idea? ›
A cashless society would rely on a complex network of digital systems, which would be vulnerable to cyberattacks. If these systems were hacked, it could have a devastating impact on the economy. Privacy is the third challenge raised. Cash can be exchanged anonymously, leaving no digital trail.
Will we ever live in a cashless society? ›
Though a cashless society may eventually come, it isn't in a huge hurry. The most important step for CFIs right now is to cater to all of the transaction types that their customer demographics prefer in order to provide well-rounded services that address the needs of all customers in the meantime.
Why are people afraid of cashless? ›
Data security - many people are concerned that their financial information may be compromised in the digital environment. Concerns about hacking, identity theft and other cybercrime. Lack of physical control - often managing money in cash gives people a tangible sense of control.
How much longer will cash be around for? ›
While the future demand for cash is uncertain, it is unlikely that cash will die out any time soon.
Are they going to stop cash? ›
Nope. We might use less cash, but our society still has a long way to go before it's totally and completely cashless.
Will cash be used in 2030? ›
Analysis from Barclays Investment Bank, meanwhile, predicts that the global transition from cash to digital payments would reach a tipping point moment in 2025, when absolute cash usage would decline from 41 per cent in 2019 to 20 per cent by 2030.
Will people still use cash in the future? ›
Even in a growing global economy, that means more than $2 trillion dollars of cash that was in global circulation in 2020 won't be around in 2024. In North America, cash is projected to account for only 8.7% of all POS transactions by 2024. If you're looking for a cashless society, it's increasingly easy to find.
