The End of Cash

It’s quite clear that people don’t need traditional money in the form of bills and coins any more. There are too many alternatives to cash, such as debit cards, payment tokens, e-cards, and cell phones. Many of us rarely carry cash, and if we do it lasts for a long time – mostly for paying for a chocolate bar, chewing gum or other small purchases.

Money is expensive for countries to produce and if it is lost, it is gone, whereas most of the alternatives can be replaced. This gives rise to the question – is it worth it to spend the money on producing a currency that is only used for small transactions and is vulnerable to theft and loss?

Statistics show that in advanced economies, like Canada and the US, cash is only used for about 6% of the total transactions carried out in the economy – and that measure is declining steadily.

Some other countries have been working towards the elimination of cash, including Sweden and Denmark. In Sweden, the banks stopped handling cash transactions. In Denmark, a law was proposed effectively making cash illegal. The trend is continuing in some other countries in varying degrees.

Eliminating cash is not necessarily easy, as there are holdouts in the system who prefer cash, including some elderly people, and some who are not into technology. But most people are Ok with it and their options are growing with new phone apps, like Interac, Google Wallet and Quickpay. Easy access to mobile banking is key.

Eliminating cash would have numerous benefits. For example, it would undoubtedly lead to a reduction in crime, since stealing cash is a major preoccupation of the criminal element amongst us. It would also bring about more efficiency in the closing of economic transactions, since this could be handled with the push of a button. True, it would lead to a need for security over the electronic means of settlement, but we already have that problem, are dealing with it and will get better at it.

Eliminating cash leads to the elimination of traditional bank accounts. In other words, with no cash in the system, the banks would cease dealing with it and you would not be able to go into the bank and draw out your money in cash.

Some have suggested that it would be even more efficient for the central bank to take over such accounts for everyone, thus placing greater control over the monetary system in the central bank and making it easier for them to manage the system in times of recession and inflation. For others, this scenario evokes images of Big Brother – too much government control over individual lives.

In any event, newer types of bank accounts would still exist. There would still be a need for someone to keep track of your wealth – your purchasing power. The most likely outcome would be that the dollar would still exist as a monetary unit, it just would no longer exist as a physical thing. Your money would be all digital and digitally transferable for personal and commercial purposes.

If we were to go this route in Canada, and the banks stopped dealing with cash, all people would need a means of easily accessing and using their digital money in their accounts. At present, large numbers of people use debit cards, so their use would increase accordingly. Also the use of credit and convenience cards would still be possible.

Beyond that, there would no doubt be an increase in the use of private payment systems, such as Tim Cards and the cards used on bridge and highway systems. And there would be a tremendous incentive for the cell phone system to implement easy and viable systems for payments. This would take longer because implementation on a large scale would require infrastructure enhancements, such as the modification of cash registers to be able to read the new systems, whether on cell phones or some other electronic device.

Bank notes (previously paper but now polymer) in Canada are issued by the Bank of Canada. The central bank sells them to the commercial banks and invests the proceeds. After paying for the cost of production, profits are paid over to the government. Coins are issued by the Royal Canadian Mint.

Under a digital system, the Bank of Canada would still need to control the volume of money available. This could be done digitally, which is in fact the way that the largest portion of the volume of money in circulation is already managed.

A new digital system would require some tweaking of the monetary system, but not a major reworking. There’s something to think about.