BankingBanking Risk ManagementCashless economy puts financial inclusion at risk

Cashless economy puts financial inclusion at risk

The growing movement against the use of cash promises higher-performance economies, better expense tracking, and enhanced repressive capacities against theft, crime, money laundering and tax evasion. But increasing numbers of voices, in the freedom movements as well as in the social justice circles, raise awareness over the social damage which the upgrade could yield.

The growing movement against the use of cash promises higher-performance economies, better expense tracking, and enhanced repressive capacities against theft, crime, money laundering and tax evasion. But increasing numbers of voices, in the freedom movements as well as in the social justice circles, raise awareness over the social damage which the upgrade could yield.

 

The war on cash isn’t new. The first economic entities to oppose the concept of hard currency were online payment industries (such as Visa, Mastercard…), which are in essence in a zero-sum game against cash. As cash payments gradually declined over the decades, in favour of debit card payments, and then of computer and smartphone payments, other voices started pushing for the demise of cash. Banks oppose cash because of its burden, governments see it as a tax evasion device, and some economists see it as antiquated.

Nowadays, Northern European countries are already quite advanced in the race against cash. Business reporter Maddie Savage tells the BBC: “Amongst the other typically Scandinavian touches – minimalist white tiles and exposed filament light bulbs – is another increasingly common sight in the Swedish capital: a “We don’t accept cash” sign.” And last year, India shifted from slow socially-induced trends to government-imposed reform, with the simple abolition of cash, in an attempt to bring the economy under his control and end so-called “black money”.

Indian prime minister Narendra Modi stated : “In the past decades, the spectre of corruption and black money has grown. It has weakened the effort to remove poverty. On the one hand, we are now No. 1 in the rate of economic growth. But on the other hand, we were ranked close to one hundred in the global corruption perceptions ranking two years back […] This shows the extent to which corruption and black money have spread.” However, despite the reform’s stated aim of protecting India’s numerous underprivileged population, the move highlighted how a cashless world was deeply harmful to them.

The world is still full of unbanked people, many of whom in India, who have neither the knowledge, the capacity or the funds to open a bank account and jump onboard towards a cashless world. An entirely cash-free society could reveal itself as very harmful to these categories, and reveal itself so only when it’s too late.

Sociology Ph. D Dana Kornberg studied the extensive social damage dealt to the Indian working population by the reform: “India’s working poor rely almost exclusively on cash, with about 97 % of all transactions involving an exchange of rupees. With 93% of the country working in informal off-the-books jobs, most transactions entail personalized relationships rather than standardized forms of legal contract or corporate institutions […] My work in India leads me to believe that cash plays an important role in our modern economy, particularly among the poor, and those urging a cashless future should do so with great caution.

This phenomenon is not limited to homeless people and the destitute. Beggars around the world rely on panhandling which is exclusively carried out in cash, despite some attempts to enrol them into programs. But the unbanked world goes way beyond that population, with many “poor workers” earning their pay and purchasing their necessities with currency.

Another category of the population is at risk, with the ongoing cashless perspectives in the world: the elderly. Online payments, be they carried out via computer or smartphone, require some form of computer literacy and the possession of a connected device. Post-war generations and baby-boomers, who are today in their 70s, have levels of computerization and computer literacy notoriously below that of their children, and even more of their grandchildren.

There is a direct link between computer literacy and the number of computers in the environment where people were born, and it will be many decades before everyone on earth will have been born in an ocean of PCs and smartphones. Isabelle Borges, AGE policy officer for the EU, says: A survey by Help the Aged in the UK revealed that more than 3 million older people (36%) feel out of touch with the fast pace of modern life. At the same time as the UK Office of National Statistics shows that seven in ten over 65s have never used the internet.”

In the meantime, older generations still rely much on cash, a form of currency which they understand and are familiar with. While they are in a way connected, through their pensions which are wired to their bank accounts, it only materializes through cash and cheque payments. The deletion of physical currency could therefore hamper their social and economic inclusion and further push them to the outskirts of life in society, forcing them into systems they neither understand nor master.

Finally, cashless trends are suspected of causing a further spread between the rich and the poor, thus aggravating the uneven distribution of wealth. Because the voice of people with positions of power tends to carry far more than the whisper of modest-living people, there is a risk that the social dynamics in favor of cashless cities and systems are the result of the haves’ will, and neglect the more discreet will of the have-nots, who have less social influence and lobbying power. The risk of spreading further apart the poor and the rich applies both to the citizens’ level and to the nations’ level.

Economies will have increased difficulty in interacting if some are entirely cashless, such as Northern European ones, and others are cash-based, such as Asian and African ones. Economist Kim Murray explains that Traditional banks are still struggling to reach the unbanked across Africa. In 2014, a staggering 66% of Sub-Saharan Africans did not have a bank account. The small size of national markets, a lack of financial literacy, low-income levels, political instability and weak judicial systems have created a constrained African banking system.”

Some governments have already begun taking part in the war on cash, given how they would be main beneficiaries, but resistance is already starting to mount on the way to reform.

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