A cashless society is one in which cash, in the form of physical banknotes and coins, is not accepted in any financial transaction. Instead, people and businesses transfer money to one another digitally—via credit or debit cards, electronic money transfers, cryptocurrency, or online and mobile payment services, such as PayPal and Apple Pay. Although no existing society is cashless, many economists believe that consumer preferences, competitive pressures on businesses, profit seeking by banks, and government policies designed to facilitate cashless transactions will soon lead to at least a few cashless societies.
There are various measures of cashlessness, yielding different rankings of countries along a “cashless continuum,” but most experts agree that Sweden is now closest to the cashless ideal. Cash is now used in less than 15 percent of transactions in that country, and the value of cash in circulation has declined significantly in the 21st century, now representing about 1 percent of GDP. Swedish retailers and restaurants are now permitted to refuse cash payments merely by posting a sign, and more than half of all Swedish bank branches no longer handle cash. To facilitate the transition to cashlessness, central banks in some countries have introduced government-backed digital currencies to replace or complement banknotes and coins.
Proponents of a cashless society argue that digital transactions are more convenient for both customers and businesses and that cashlessness would cut down on many criminal activities. They also maintain that the trend toward cashlessness is unstoppable, given the increasing digitization of economies and consumers’ growing preference for conducting daily business with mobile devices. The trend has been propelled, however, by banks that have intentionally made cash transactions less convenient for their customers (e.g., by closing branches and removing ATMs) to encourage the use of digital services that are more profitable. The global coronavirus pandemic that began in 2020 also contributed heavily to an increase in touchless and cashless transactions.
But there are potential drawbacks to a cashless society. First, it would largely exclude “unbanked” (mostly poor) persons, who do not use or cannot obtain a bank account. Second, it could invite serious breaches of privacy, because few purchases and sales would be anonymous. Third, even minor technological glitches could block access to funds, and systemic failures due to natural disasters or massive hacking could make all purchases and payments impossible. Fourth, during a severe economic crisis threatening the solvency of major banks, depositors would be unable to rescue their money by withdrawing it in cash. Nor could depositors prevent troubled banks from taking a portion of their deposits in “bail-in” scenarios, under which the institution’s shareholders and creditors, including depositors, are held responsible for its debts (in the U.S., up to $250,000 of each deposit would be protected from such seizures). Finally, ordinary depositors would not be able to protect themselves from negative interest rates, which central banks in some countries (e.g., Japan) have imposed to combat recession or deflation after cuts in positive interest rates to near zero have failed. Negative interest rates permit private banks to charge depositors what amounts to a fee for holding their money, thus encouraging them to spend and invest. Indeed, some economists consider that to be an argument in favor of a cashless society, as it would make painfully deep negative interest rates workable because they could not be avoided through cash withdrawals.