Cashless Society: Helpful or Harmful?

I’ve been reading a lot lately about the notion of a cashless society. This is not a discussion of the fact that nobody has any money (it’s true, they don’t), but rather a trend towards big changes in the physical currency of a nation.

cashless society

Canada has made plastic money and even phased out the penny, but this is not what we are talking about. When you hear discussion of a cashless society, it is a discussion on whether it would be wise to phase out physical currency.

Alternatives to Cash

If a country decided to get rid of its physical currency, it doesn’t take an economist to figure out that something will need to replace it.

The most obvious replacement for currency is a debit card. The federal government could mandate that all transactions be made with either a debit card or a credit card, all linked to a central account that is probably also linked to your Social Security and Medicare profiles (for USA residents).

Another option is the barter system. Shopkeepers and business owners could start doing business between each other by trading goods and services off the books. This would leave the wage slave at a disadvantage if he produces no goods or services with which to trade. He is chained to the debit-currency system in a cashless society.

 

Pros and Cons of a Cashless Society

There are probably many reasons why most (if not all) societies have stuck with physical currency. Let’s take a quick look at some pros and cons (keep in mind that these are based on my opinion, you may or may not agree):

Pros

  • Would probably hamper the private criminal black market (drugs, weapons, etc)
  • If needed, a criminal’s entire cash savings could be instantly frozen
  • The government would save printing and minting costs
  • Money could not be removed from the face of the earth
  • Would eliminate counterfeiting

 

Cons

  • People spend more when using a card versus cash
  • Requires processing a logged record for even the smallest transaction
  • Privacy and government tracking concerns
  • Potential loss of tax revenue if some transactions go “underground” through barter
  • Would money “disappear” if a server crashed and data was lost? What about hacking?

Some of these pros and cons of a cashless society are subjective and I must admit I haven’t done a ton of research to see if they are valid. For example, maybe the government would save on printing costs, but they squandered it all and then some developing a computer network to track the cashless transactions.

It’s possible that this would make it easier to implement one currency for the entire world, but I didn’t put that in a category because I’m not sure how I feel about it (leaning against).

 

Moves Toward a Cashless Society

Despite what you may think about whether it’s wise to move towards a cashless society, some things are happening around the world that are moving us at least a little bit closer.

According to the Toronto Gazette: “…the Royal Canadian Mint is preparing to launch a digital alternative to all coinage and small bank notes – dubbed MintChip – which it hails as the natural next step in the “evolution of currency.” The concept was quietly introduced on Wednesday, when the Ottawa-based crown corporation activated a Website outlining its vision for the future of MintChip – described as “better than cash” and “so easy even a child can use it” – and invited software developers to begin imagining different ways the technology could be employed.”

According to the Daily Bell: “Spain has outlawed the use of cash in business transactions in excess 2,500 euros in order to crack down on the black market and tax evaders. The motivations behind the push for digital currencies is exposed as Spain heads down the road of the Greeks in combating their sovereign debt crisis.”

According to Wikipedia: ”Bitcoin is a decentralized electronic cash system that uses peer-to-peer networking, digital signatures and cryptographic proof so as to enable users to conduct irreversible transactions without relying on trust. Nodes broadcast transactions to the network, which records them in a public history, called the blockchain, after validating them with a proof-of-work system. Users make transactions with bitcoins, an alternative, digital currency that the network issues according to predetermined rules. Bitcoins do not have the backing of and do not represent any government-issued currency.”

 

Readers: What are your thoughts on a cashless society? Is it a good idea? 

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46 Comments
  1. Great article and some very good points made. I think that counterfeiting would take on a new face. With an all-electronic currency, counterfeiting would take the form of increased identity theft and a form of reverse hacking in the form of a sort of electronic padding of accounts. Hacking of, probably fictitious accounts to add electronic funds that don’t exist or from victim’s accounts that did not make authorized transfers. Usually we think of hacking in terms of wanting to extract data and/or money, in this case it would be to inject money that has been laundered.

    I also agree that the government would be using this as a form of control and tracking for good and bad purposes. Electronic currency should provide perfect records of transactions made but there will be ways made to escape this.
    Shawn recently posted..Investment Diversification Should Be True DiversificationMy Profile

    • Great food for thought, Shawn. It would be hard to trust the numbers because they are just that – numbers.

      Thanks for your comment!

  2. I think, as you mentioned, a cashless society would lead to more overspending. I think people would have an easier time financing their life with debt, because money will become an intangible, abstract thing that is only ever displayed as numbers on a screen, instead of as a physical, tangible object. That’s just my opinion though, it may be totally off base.
    Jordann @ My Alternate Life recently posted..Would You Work Any Job?My Profile

    • No, I think you are definitely on the right track. One of the problems with money is that it’s becoming more abstract, more complicated, more “derived” and further from the average person. Thanks for stopping by!

  3. This is a very thought provoking post. I can only say that after surviving my own financial devastation over the last 4-5 years, I have become increasingly comfortable using cash only while not having a checking account and using a pre-paid and secured credit card instead. The difference between spending cash vs plastic in “normal” circumstances is cash is what you actually have in your pocket and plastic is money you think you have but actually don’t. I would be very distrustful of such a system because it gives to much control to whomever would control the system. A slippery slope if you will. Here’s another thought provoking post about it http://www.salon.com/2012/03/12/should_we_fear_a_cashless_society/

    • Hey Lou, thanks for sharing that link – I hadn’t read it. You are right that it would put everyone’s money in the control, or at least under the thumb of, the government.

      Thanks for stopping by

  4. I would prefer not to have a cashless society. I use mainly cash because I know I would spend more with plastic.

    I don’t think a cashless society would cut down on the black market, I think they would just find another way to commit crime.
    Call Me What You Want Even Cheap recently posted..5 Dumb Money Mistakes!My Profile

    • I agree on the cashless society – I’d rather not see it either. I do like that 5% cash back on groceries with my card, though…

      Thanks for stopping by!

  5. If a barter system is introduced- people are going to need to seriously improve their negotiation skills!
    Financial Conflict Coach recently posted..Why Seth Godin Made Me CringeMy Profile

    • Bartering is already a booming business in the US. There are several large national networks where people can offer products and services for “barter bucks” rather than physical cash. It’s not like the feudal days of trading sheep for cattle or anything like that. It’s pretty much business as usual except all of the currency is tracked electronically.
      Eric J. Nisall – DollarVersity recently posted..A Business Is Not Your Personal Piggy BankMy Profile

    • Very true, sir. Back to the basics of business, face to face with a handshake.

      Thanks for reading!

  6. I spend all of our money in cash so I would certainly not be very happy. The beautiful thing about cash is that I don’t have to keep receipts or balance a checkbook, or log online to see how much money I have.

    I’d be a bit annoyed if we ever transitioned to this kind of thing.
    Jason recently posted..Asset Allocation & Diversification: Stocks, Bonds, or CashMy Profile

    • I used to be cash only but I like 5% cash back on groceries, so I went back to the cards.

      I also like the freedom of cash and agree that I wouldn’t want to go to a mandatory cashless system.

  7. This is interesting – I’m sure it would be a little hard to do, because of all the people who have worked very hard to accumulate cash wealth in their lives. How would we replace that and phase it out? interesting thoughts though.
    Daisy recently posted..How The ’90s Set Us Up to Fail FinanciallyMy Profile

    • It would probably be like when the US confiscated gold under FDR. You would have to count it out in front of a tax agent and they would pay you the fair market value, deposited into your account.

      Thanks for stopping by Daisy!

  8. I always end up thinking about Demolition Man when this subject comes up. Like the cash people will be he ones living underground in protest of the new world order. Maybe it’s just my progressive nature and always looking for ways to streamline and simplify my life, but I’m all for going cashless.

    I laugh every time I hear about cash making people spend less. The truth is that people spend regardless of the form of payment. The issue isn’t with the medium it’s with the individual’s inability to control themselves. Sure, some people may think twice about spending cash versus putting it on plastic, but taken across the population as a whole that argument loses quite a bit of steam.

    As far as bartering going “underground”, I’m not so sure especially since there are so many people who already run very successful businesses based largely on barter networks. Again, it would probably be a relatively small percentage that would resort to this.
    Eric J. Nisall – DollarVersity recently posted..A Business Is Not Your Personal Piggy BankMy Profile

    • Hey Eric, thanks for stopping by.

      The cash people would be those who haunt the silver and gold forums and hoard nickels in their basement.

      Regarding barter, I think this is happening in Greece right now. The farmers are going directly to the customer and the tax fraud is rampant.

      I do like the Demolition Man vision.

  9. I really enjoyed this post John. It really makes you think. There are definitely both pros and cons of such a system. I think the biggest con is the loss of privacy. We are already getting more and more of your personal activity exposed online. If our entire spending patterns get accumulated too, that is just way too much information. Talk about the perfect profile to know who to advertise which products too.Huge corporations would be throwing money at government employees to get their hands on that kind of info.

    I’m not really sure how it would affect criminal activity. I don’t think the hacking concern would be much since they are now able to encrypt data very well. Still, if someone is unethical to have a career of crime, they would find ways to keep their enterprises going. They’d be bound to find ways to launder money into various fronts.

    I do think we are headed in this direction though. It’s just a matter of time before governments force this down our throats in an attempt to get more tax money and more bribe money from corporations.
    Modest Money recently posted..Mid May 2012 Blog UpdateMy Profile

    • At least Canada is making some common sense progress on money like dumping the penny and making plastic bills. I’m afraid that you are right about things heading in that direction, though. In the Information Age, info is the true currency.

      Thanks for your comment my friend!

  10. I’ve heard of Bitcoin, but I guess I was just confused by it all. There are so many different options out there.
    Michelle recently posted..My Plumbing Mistake…My Profile

    • It’s a neat idea, probably used for a lot of weird black market things.

  11. It’s an interesting discussion but I don’t think it’ll ever happen here. We’re too tied to our greenbacks.
    Frugal Portland recently posted..Frugal vs. CheapMy Profile

    • If it does happen here, I think you are right in that all other countries will have gone to this before us. Heck, we still defend the imperial measurement system and refuse to get on SI.

  12. It’s worrisome because of a potential computer crash and all my money disappearing. If I have it in my pocket, it’s right there. Also, and more importantly, and I”m not kidding although this will sound conspiracy-like… we’ll never go cashless entirely because of your #1 Pro “Would probably hamper the private criminal black market (drugs, weapons, etc)” Governments and many influential people are in that market and require cash money to be used. So they would never let it happen. No worries folks, cash in some form or another is here to stay!
    TB at BlueCollarWorkman recently posted..Road Rage With a Gun… for realMy Profile

    • Your comment is both reassuring and frightening at the same time! They will find a way to write in a loophole for international narcoterrorists I’m sure.

      Thanks for your comment

  13. I think it’s becoming more and more universal. I read an article that I was going to post about that mentioned using blackberries as a payment method. I can pay with my phone at Starbucks…so when I forget my wallet, I can always go there. Not bad for business huh?

    Interesting points you brought up though, although subjective – still leads towards a good discussion and thought process.
    From Shopping to Saving recently posted..When a Recipe for Success FailsMy Profile

    • Great point. I do see the mobile phone being the mechanism for payment, like it already is as you mentioned. Everyone will have one – it will be your ID, drivers license, passport, wallet, etc…

      It is a tough subject because the pros and cons are subjective, depending on what side of transaction or issue you are on.

      Thanks for stopping by!

  14. Planet money has done some great podcasts on this idea. The did one on bit coin and another on an ancient moneyless society. Very interesting!

    • Thanks for the suggestions. I’ve been getting into podcasts lately and will try to find those.

  15. I honestly don’t think out society is responsible enough to move towards a cashless society. I think people have enough trouble balancing their monthly finances. I feel like people don’t understand what they are actually spending when it is on credit and that is why our nation has so much consumer debt. People live way beyond their means because of the access they have to credit. I worry for the day when there is no more cash.

    Great article!
    Janine recently posted..A Frugal 15My Profile

    • Hi Janine. I do think that our nation’s financial literacy rate is not very good. Money is a force that is always working; the game is whether you are controlling or being controlled.

      I also don’t want to see a cashless society.

      Thanks for stopping by!

  16. Personally, I think the only reason that a cashless system would be implemented is so that all transactions can be appropriately (in the government’s view) taxed, and to limit the freedom and mobility of citizens. For example, the US currently has laws on the books that even if you give up your US citizenship, you are still required to pay taxes on all worldwide earnings for 10 years. There is a bill in congress that would basically make it illegal to renounce your citizenship. A cashless society sets up a society much like east berlin under the soviets.
    CultOfMoney recently posted..Golf lessons, deciding to get better at golfMy Profile

    • I think it would drive many transactions underground and reduce tax revenues. We are entering an age of openness. Open source, open borders, facebook, and the like.

      Thanks for reading!

  17. I would be worried about my accounts being accidentally frozen or something, but I am pretty cashless now, so that is already a risk. I do like to keep a few hundred on hand just in case we have to evacuate for a hurricane though. So in general, I figure we will probably get there eventually but hopefully there will be something in place for those sort of emergency situations…

    • You are the first to bring this up: what do we do when the electricity is off. A Patriot Debit Card is useless in an emergency.

      Thanks for reading and weighing in!

  18. You’ve really brought some valid points. Personally, I would prefer using cash to make my purchases. However, if I’m making a single purchase of hundreds of dollars, I don’t think that I would feel safe carrying wades of cash with me. For that type of purchase, I would want to use some form of plastic; whether it be a credit or debit card.

    In that case, I guess going cashless would be a benefit. However, I don’t think that I would want a completely cashless society.
    Anthony Thompson recently posted..Self Manager – More Human Attributes that Will Get People to Like YouMy Profile

    • I also don’t feel comfortable carrying hundreds of dollars around. I also feel awkward whipping out my credit card for a box of Tic Tacs. I do like the cash rewards of using a card to pay for groceries, gas, etc.

      Thanks for stopping by Anthony!

  19. Great topic, John..

    I am and have been anti-cash for a long time.. For myself, when I have cash in my wallet– I can’t help but consider it “free money”, and I spend on things that I normally avoid (gas station snacks, vending machines, etc).. Some folks may spend less when using cash, but that isn’t true for me.. With electronic transactions, you have a record of everything that you spend, and thus it counts against your budget, and merits consideration..

    That said, I don’t think that I would support the country moving entirely in that direction.. The privacy concerns scare me, and we would have no guarantees that this data would not be sold to third parties.. Giving the government an exact record of everything we have ever bought, is an intimidating concept.
    jefferson recently posted..How to Choose a ToiletMy Profile

  20. I’ve noticed the conventional wisdom always says most people spend more with cards because I’m like you. Cash always seems to disappear.

    I also know some people don’t care if the government and big corporations track and data mine their every move. Count you and me in the group that objects.

    Thanks Jefferson!

  21. Great article John! I agree with Shawns post that a new type of counterfeiting would take place. The criminals will always find a way. I would be in favor of a cashless society though. I’m also not one of those who spends less with cash. I’m the exact opposite. Cash goes quick from my pocket.
    John recently posted..The Short and Sweet Guide to Target Retirement FundsMy Profile

  22. I don’t want to live in cashless society. Don’t want to be fully tracked by banks and government. Don’t want to fear that one day all the deposit will gone, etc.
    Alexander Collins recently posted..5 Reasons to Avoid Holiday Trading on Forex MarketMy Profile

    • If you have an IP from an ISP than you’ve pretty much already made yourself available to tracking. Same thing goes for an iphone and other devices that use “location” settings. I do agree that a cashless society will make it even more prevalent (easier) but at this point in time I think we’re already being tracked.
      John recently posted..How to Break-Up With Your Girlfriend-The Right WayMy Profile

  23. Cashless society is better, it relieves pressure on our natural resources, as long as you are responsible and not an impulsive buyer.
    Amy Turner recently posted..American Express Premier Rewards Gold Card Review: Worth $175?My Profile

  24. Of course athoritarians and bankers and corrupt governments have salivated over this for many many years.

    This must be resisted at full force.

    Allowing this would be the equivilant of letting the worlves in the hean house with no guards.

    financial slavery
    endenturement
    servatude

    A Moral hazard of global proportions.

    thier new world order will fall, humanity will defeat them,

    the asnwer to 1984 is…….1776.

    The answer to this tyranny is a world wide revolution against the elite of the planet.

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