The world is slowly becoming a cashless economy, an economy in which economic activities are performed primarily in electronic forms rather than money. It is a transformative shift in living with money, its potential and pitfalls for people, companies, and governments. In this article, we shall be addressing the history and popularity of the cashless economy around the world, reasons, advantages, disadvantages, and future of this new age of money.

Motivators of the Cashless Economy:

There are various motivators that are transforming the world towards a cashless economy. Mobiles have been spread across the globe, and internet penetration has provided the needed platform for payment via online. Mobile wallet, contact payments, and online bank services have brought easy access and hip, which has been opted by increasing customers. Apart from this, the COVID-19 pandemic hastened cashless payments in view of hygiene and social distancing concerns. Governments also support moving towards a cashless economy in order to be more transparent, to prevent tax evasions, and to save processing fees for cash.

Advantages of a Cashless Economy:

The cashless economy will have the following potential advantages. It will be more efficient since it will make transactions simpler as well as minimize handling cash. Online payments may be safer than cash, avoiding loss and theft.  Cashless economy has more significance towards extending financial inclusion since money and banking infrastructure would be available to the unbanked as well as the under-banked population. Also, it would make the world a more transparent place as an electronic history would be made available of each payment, and money flow monitoring would be easy while illicit payments would become easy to combat. For businesses, a cashless economy would reduce the cost of managing cash, make accounting easier, and yield precious insights into consumer buying habits.

Drawbacks of a Cashless Economy:

While there are many advantages, there are also some disadvantages to moving towards a cashless economy. The threat of cybercrime intrusions is one major concern because electronic payment systems can be hacked and have unauthorized access to data. Maintaining the security and privacy of personal financial data is paramount in ensuring consumer confidence. The cash gap where some do not even possess technology or internet, may keep them out of the advantages of a cashless economy. It is hence necessary to bridge this cash gap so that everyone is a stakeholder in a cashless economy. Others also cherish the anonymity and freedom of cash when it comes to surveillance and privacy concerns in an entirely digital environment.

Global Cashless Adoption Differences:

Use of cashless economy is quite different around the world. European Scandinavian nations like Sweden and Denmark are head-of-the-list users of cash payments. Cash is de-preferred already, particularly in these nations, with people seeking alternatives that don’t accept it more and more, where many sellers don’t accept business in change form. India and China have joined the battle to a significant extent by promoting electronic payments by way of government subsidy and universal mobile wallets. However, cash is the ubiquitous payment medium in the majority of developing nations, and hence generates low cashless speed of adoption, especially in rural regions. Low cashless speed of adoption is largely dependent on cultural forces, infrastructure constraints, and banking sector trust.

The Role of Governments and Central Banks:

Central banks and governments wield the most power in the cashless economy. They must develop an enabling regulatory system, but balance it with financial stability and consumer protection. Central banks also consider the issuance of CBDCs, which has the potential to destabilize the payment system. CBDCs could provide a secure and fast replacement for cash, and for central banks who have greater oversight of the financial system.

The Future Cashless Economy:

The trend of the cashless economy will also be witnessed in the coming years.

With technology growing and the way people shop and buy goods and services changing every day, digital payments are going to become even more common.  The shift to a completely cashless society, however, is going to be slow and patchy. Fighting the issues of digital divide, privacy, and cybersecurity is necessary to universalize the advantages of a cashless economy. The future of the cashless economy also hinges on payment technology innovation, the changing regulation environment, and consumer, firm, and government choices.

The Role of Financial Literacy:

With it being a cashless economy, financial literacy is more crucial.

We must enlighten people about electronic payment means, cyber attacks and traditional methods of dealing with money in a digital era.

We must have financial literacy so that individuals feel secure and at ease in the cashless economy.

The Evolving Payment Landscape:

The payment scenario keeps changing with innovative business models and upcoming technologies continuously.  From blockchains to payment system via biometric authentication, brighter days are ahead for the cashless economy.  Organizations and individuals adopting such emerging innovations and adapting to stay in sync with the new technology is required.

A Balanced Approach:

While the benefits of a cashless economy are tremendous, challenges will have to be recognized and change will have to be handled intelligently.

A balanced strategy keeping in view the interest of all the stakeholders, including the digitally excluded, must be formulated to bring about an inclusive and equitable financial regime. The cashless economy can change the world, but it will prevail based on our capacity to overcome the challenges and exploit the opportunities available.