Why Are Banks So Eager To Shift To A Cashless Society?
These days, the banking industry is calling on their users to use digital banking payments instead of cash. According to research, some of the more economically developed countries, like Sweden and UK, will move to a cashless society by 2020. However, why are banks so eager to call on their customers to stop using cash?
Dr. Scott Sumner, Professor Emeritus of Economics at Bentley University, points out that one of the reasons for the elimination of cash would be to make it easier for governments to impose negative interest rates.
Dr. Scott Sumner wrote in a commentary prepared on behalf of RCW Financial of Irvine:
“To encourage banks to move the new money out into the economy, where it would boost aggregate demand. But one thing was standing in the way — cash. The zero lower bound, which might, in fact, be closer to negative 1%, is the second reason why economists like Ken Rogoff have suggested moving away fr om cash. In a cashless economy, the Fed could push interest rates as far negative as they wish.”
Alternative currencies versus cash
The move towards a cashless society could lead to increases in the values of gold and alternative currencies, such as Bitcoin. But, to date, banks and governments are not in a hurry to popularize the use of Bitcoin and other cryptocurrencies. For them, choosing between cash and cryptocurrencies is like choosing between two evils. They are more interested in getting more control over the flow of money and the ability to collect taxes.
Dr. Scott Sumner notes that despite the rise of the use of credit cards, statistics show that the amount of cash in circulation is roughly $4500 for every man, woman and child in America. He writes:
“It is believed that roughly half that total is held overseas, but even $2000 per person would be a surprisingly large figure, far higher than people admit to in government surveys. Ironically, it is this increasing popularity of cash holdings that helps explain why governments are so anxious to discourage the use of cash."
Dr. Scott Sumner notes that despite the rise of the use of credit cards, statistics show that the amount of cash in circulation is roughly $4500 for every man, woman and child in America. He writes:
“It is believed that roughly half that total is held overseas, but even $2000 per person would be a surprisingly large figure, far higher than people admit to in government surveys. Ironically, it is this increasing popularity of cash holdings that helps explain why governments are so anxious to discourage the use of cash."
Moving to a cashless society
However, a number of countries are considering creating national cryptocurrencies based on Blockchain technology. In the summer, a session on issuing a new cryptocurrency called “Britcoin” was held in the UK. Payment operator QIWI called to create a national currency, “BitRuble”, in Russia. While in Japan, the Bank of Tokyo Mitsubishi UFJ has also announced its plans to issue its own virtual currency.
The development of the cashless society movement will be very different in various countries. Sweden, where roughly 95% of all retail sales are made electronically, or Singapore, that has the highest usage of payment cards in the world, accounting for almost two-thirds of all transactions, will move to cashless societies much quicker than countries with a high number of unbanked citizens, or countries where people still find it much more convenient to use cash instead of cards.
Dr. Scott Sumner concluded: “In my view, cash will not be completely eliminated in the near future — Americans have an independent streak, and are still reluctant to move to a world where they do not have the freedom to use cash.”