What is the future of cash?
If you have been to any retail store in the past few months you have probably noticed a sign on the cash register that says something like “due to coin shortage exact change required” or “cash not accepted due to coin shortage” When I first saw one of these signs I wondered what exactly would cause coins to suddenly be in short supply.
After a little research, I discovered several interconnected causes for this shortage. Like many other difficulties we are having in 2020, COVID-19 is at the core of this crises. As a result of less in-person shopping, there has been a massive reduction in cash transactions in retail stores. Many of those braving brick-and-mortar stores have chosen to forgo cash in an attempt at slowing the spread of the virus. This alone has reduced the amount of coins being exchanged. On top of that, starting this past spring, the Federal Reserve implemented safety procedures to protect mint employees, resulting in a significant reduction in the amount of currency being produced. This combination has led to this overall shortage.
I’ll admit this coin shortage has had little impact on me. Outside of the quarter I need to get a cart at Aldi, I don’t remember the last time I paid physical cash for something. I simply find using a card to be much more convenient. I’m not alone in this. A recent study by US Bank found that one in three adults conduct zero cash transactions in a given week. According to the study however, age and income play major roles in this. Older Americans and those with lower incomes are far more likely to use cash.
The trend to a cashless society did not start with COVID, but it has certainly sped up the process. China has been the worldwide leader in moving away from cash altogether. As more and more U.S. businesses move away from accepting cash, we should be aware of several dangers.
First, as I mentioned earlier, seniors and the poor will be disproportionately impacted. Many in these demographics lack the technical knowledge to take advantage of a cashless society. My mom, for example, has never used a card for her everyday purchases, and a transition plastic would be very difficult for her. Many in these groups are also underbanked. A move to a cashless transactions could severely hinder their ability to pay bills and make purchases.
Another danger of a cashless society is how dependent we become to technology. Unlike simple cash transactions, electronic payments require a multitude of complex systems to be functioning in unison. Think about it. Electricity, the internet, card readers, computer servers and dozens of other systems I don’t understand all must work together in real time to complete a single purchase. If one link of this chain breaks it can be catastrophic to our society.
A final threat in moving away from cash poses is the threat if cybercrime. In the past if your wallet was stolen you simply lost whatever amount of cash you had on you. Today, a criminal who gets ahold of your wallet or phone potentially has access to your life savings. Being robbed takes a different form in a cashless society too. With more and more financial transactions conducted online, the person who robs you can actually be thousands of miles away and you may not know a crime has been committed until weeks or months later. While many safeguards exist to protect you and your money, nothing is foolproof and the danger is real.
I am convinced that the old saying “cash is king” is no longer accurate. However I believe there will always be a need for cash in our society. If 2020 has shown us anything it has shown us that systems can fail and we need to have a backup just in case.
(Past performance is no guarantee of future results. Advice is general in nature and not intended for specific situations)
Luke Davis is the director of operations and compliance at Stewardship Capital in Independence.