The utility of cash in a digital world

Dostoevsky, the troubled Russian author, hit the nail on the head when he said, “Money is coined liberty.” He was writing, of course, in the troubled political and social atmosphere of 19th-century Russia, so was talking more about freedom from tyranny than freedom to consume. Either way, it was a commentary of its time and might yet have something to tell us about where we are heading little more than a hundred years later as digital technology threatens to unleash a so-called ‘cashless revolution’,  and while ‘cash transfers’ transform the world of aid.

What is the situation vis-a-vis cash right now? Cash is effectively free, and always works. It is better trusted and more popular, universal and reliable than its digital equivalent. But, more than this, it has value far beyond that which its transaction value alone would imply. It fulfils unique needs. Cash is a public good, whose return on investment benefits all of society. Cash provides protection when the lights go out and acts as a guarantor of civil liberties in the event of an administration abusing its powers. It is also less expensive than electronic forms of payment, both for society as a whole and for merchants. According to Deutsche Bank and MasterCard, cash incurs a lower cost per transaction than any other form of payment. This perhaps explains why the British Museum thinks cash as being, “one of the greatest inventions known to man.”

Cash is not reliant on electricity or algorithms. It is un-hackable. With the use of smart cassette technology, it is even un-stealable. It plays a crucial role in acting as a contingency means of payment when disaster strikes, and almost always stimulates market recovery in times of crisis. The world would be a poorer place without cash, as cash promotes both social and financial inclusion. According to the World Bank and the Bill and Melinda Gates Foundation, cash is more cost-effective at reducing poverty that almost all other forms of aid. And it empowers women in developing countries by increasing decision-making authority.

According to a meta-analysis conducted by the Overseas Development Institute in November 2016, cash fosters ‘economic autonomy’. Income multipliers are also larger when aid is transferred in cash form instead of in kind.
Automation, too, is not the threat we are led to believe it is. In 2014, when responding to questions posed in Congress, President Obama quoted the US Banking Federation when he said, “the ATM has created more jobs than it has destroyed.” This remains the case now, even when bank branches seem to be closing left, right and centre, as ATMs (and the people needed to keep them up and running) become more important, not less, when a bank branch closes.

A society without cash would be no society at all. For a start, it would be less secure. Contrary to popular mythology – and statements put out by lobbyists on behalf of the payments industry – cash and crime is not connected. “Abolishing cash will not eliminate crime,” says a report by Deutsche Bank published in November 2016, “as cash is neither the motivation for crime nor the only way to transfer illicit funds.” This is because other means of storing and transferring illegally obtained assets without leaving much of a trace are already in use, including via alternative transfer systems such as Hawala and virtual currency schemes such as Bitcoin.  In addition, the experience of the Euro – where the damage caused by card fraud amounted to €430 million in 2013 versus €32 million’s worth of counterfeit Euro banknotes in circulation – demonstrates that cash is much safer to use than debit cards. Cyber-fraud increases out of all proportion to the cash circulating in society when payments go digital. In this sense, cash is a bulwark against cyber-criminality.

Moving to a so-called ‘cashless’ society poses other risks, too. For the most part, these are political and economic.

The most serious is that the state will have the power to freeze access to digital money by a person or group it dislikes. This poses a clear and present threat to the social contract between those who govern and their citizens. If you think this a bit alarmist, consider the fate of the Rohingya in Myanmar or the Kurds in Turkey.

Electronic payments are also less equitable. Electronic money is private money. Its use generates private revenue through the imposition of user-fees and hidden interchange charges levied by all those involved in the payments cycle. Unlike with cash, which circulates through local markets, digital transactions are one-time and generate fees and surcharges each and every time they are used. A cashless society, in other words, favours a few at the expense of the many.

And finally, there is the loss of privacy connected with digital transacting. This is not a small thing. Anonymity is lost with digital money. The most robust data protection is provided by cash. We have a right to preserve our personal privacy. In today’s digital world, personal data often allows those who can access and analyse our transaction information deep insights into our private lives. Data has become an economic good for which we, the unwitting provider, are not compensated, and which commercial interests will exploit ruthlessly.

Overall, it appears that the significance of physical currency runs deeper than we sometimes assume. It touches upon the relationship between citizen and the state, between those who have and those who have not. The shift to transparent and traceable electronic transacting, with no easily available option left to pay anonymously, can — and already has — opened the door to data abuse and infringement of civil rights. Given the real or perceived importance of cash for civil liberties, any limitation or abolition of cash would need to be justified by tangible public benefits accrued elsewhere. Only then will trust between “we, the people” and those that govern remain intact. Limiting the use of cash risks eroding this trust.

Once these observations have been given due consideration, it is hard to escape the conclusion that the imposition of a cashless society would not just be inequitable, but would be economically and socially backward, even counter-productive. The ATM Industry Association has even suggested that social cohesion would unravel.

In response, everyone – and that includes those fleeing persecution in northern Nigeria and the people of Nepal trying to put their lives back together after the earthquakes of 2015 – should have the freedom to decide their own priorities and choose their own financial solutions. By providing freedom of choice, cash instils a sense of dignity, autonomy, and self-worth. Just ask any refugee from Syria.

The world of ‘big aid’ should not take anything for granted. Anybody involved in humanitarian cash transfer programming, social protection, or pro-poor financial inclusion policy work should be absolutely sure that all payments options are, and always will be, on the table. After all, the price of any ill-thought-through, headlong rush to electronic-only forms of payment will be born by the very people cash payments are designed to help, the poorest in society.

©James Shepherd-Barron, 22 March 2017

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