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The Evolution of Money: Turmoil or Development?

Paper currency is becoming a thing of the past. Cash, as we know it right now, is becoming something more of a niche slice of the pie rather than covering the entire market as it used to do. With the advent of numerous fields which by their nature rely on, for instance, online payments, the refusal (or inability) to adapt to these changes is becoming something more than just a gamechanger for many industries. One of the downsides of this situation (if not handled well) is that many social groups without access to those services may be left out.

To assess the various aspects of this phenomenon, going back to its roots may be useful: what are the main driving forces of this transition towards a cashless future?

First of all, technological advancements represented incentives for banks and financial institutions to lower their cash handling cost (for example, transportation and safe storage). Besides, it allows them to shift to cheaper intangible assets like bank accounts, reducing the risks of thefts and other related crimes. This change also makes countries happy, since they can easily trace consumers’ spending to implement policies more effectively and, above all, for tax purposes. The latter aspects ease the undertaking of monetary policy, especially during crises, since consumers would not be able to cash their deposits and financial institutions would have direct access to them. Thus, banks could, for instance, charge fees aimed at compensating possible negative rates.

A cashless perspective, since it involves a digital record, would also enable controls on the type of purchases, which may be allowed (or not) by the bank to promote (or discourage) the acquisition of specific products/services. Merchants that do not respect some regulations may be prevented from receiving payments altogether. Let’s imagine how some consumers may be blocked in the first place before buying unethical products (for example sportswear coming from sources like child labour). Tourism would also gain a lot, considering the technological independency in exchanging money among countries with different currencies.

However, all that glitters is not gold. Outdated IT systems will be challenged while managing sheer growing amounts of sensitive data, incentivising criminals to move from bank thefts to online crimes like frauds or identity thefts. Moreover, from a psychological point of view, the easiness in using smoother means of payment could fuel other social issues like compulsive spending, that have already been a challenge. In the latter cases, one of the most common pieces of advice given to overcome such problems is to use cash instead of cards, since in this case, our spending would be visibly ”quantifiable”: when the most effective way of dealing with compulsive spending is no longer feasible, what will people turn to then?

Another aspect to consider is also the difference in local cultures and mentalities. Where small local businesses constitute a big chunk of a country’s economy, implementing new technologies may be harder: for communities where everybody knows each other, using cash is a daily activity. In some places, it is common to illegally offer cash payments in exchange for a discount which amounts to the VAT rate: the consumer pays less, and the merchant declares lower taxes. In places where these behaviours are common, cashless alternatives may have a hard way. However, usually these practices are ”justified” by the high costs of owning POS systems and the fees that banks charge on every payment. There is indeed a tradeoff for banks or in general for financial institutions: keep charging high prices but having low transaction volumes, or pretending less money, thus encouraging more merchants to go cashless. If the goal is to embrace the future, the card (or in general non- cash) payments seems to be the only one.

While some countries like Sweden or Norway are ahead, there are many others which are still not able to welcome this solution. To create an inclusive society where everyone is involved, countries have to be alert and not bite off more than they can chew, risking to drastically introduce new technologies when people are still not ready for it. While the final goal is quite clear, there must not be too rush in trying to reach it.


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