The Cash vs. Digital Paradox (2024)

FAQs

Is cash about to be obsolete? ›

This author says that's a false narrative. If it's been a long time since you pulled out actual dollars and coins to pay for something — here's a conversation for you. It might seem like cash is slowly becoming obsolete. But, Brett Scott says it's a false narrative that we're all pining for a cashless society.

Reserve Currency Paradox

Becoming a reserve currency presents countries with a paradox. They want the "interest-free" loan generated by selling currency to foreign governments, and they need to be able to raise capital quickly because of high demand for reserve currency-denominated bonds.

This type of money is known as a central bank digital currency (CBDC). It would not replace cash.

Digital money is a major innovation in financial technology. It overcomes the issues created by cash and makes payment systems faster and cheaper.

Similar rates have been recorded across other Scandinavian nations, while Hong Kong predicts cash will account for only 1.6% of point-of-sale (POS) transactions by 2024. But despite this global shift away from tangible currency, the US isn't likely to transition officially any time soon.

More than half of all bank branches no longer handle cash. Seven out of ten consumers say they can manage without cash, while half of all merchants expect to stop accepting cash by 2025 (Arvidsson, Hedman, and Segendorf 2018).

For its part, the US Federal Reserve is conducting research and strategic planning regarding the potential implementation of CBDCs, spurred on by Biden's executive order. Despite these efforts, America has yet to make a concrete commitment to adopting a digital dollar.

Although paper-based currencies are becoming less popular, they will likely stick around for the foreseeable future. Dollars and cents may become harder to use, but as with many obsolete technologies, there are enough users to ensure demand doesn't disappear completely.

The impact of a CBDC is much lower after taking into account that households enjoy the complementarity between deposits and other financial products within the same bank, which gives banks a competitive advantage over the CBDC.

The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022.

What are the disadvantages of going cashless? ›

Identity theft and compromised personal information are potential dangers in a cashless economy, but privacy might be compromised in other ways too. When you pay digitally, you always leave a digital footprint, and this footprint is easily monitored by financial institutions.

Banknotes and coins are the only form of money that people can keep without involving a third party. You don't need access to equipment, the internet or electricity to pay with cash, meaning it can be used when the power is down or if you lose your card. It's legal tender.

While the future demand for cash is uncertain, it is unlikely that cash will die out any time soon.

Even in a growing global economy, that means more than $2 trillion dollars of cash that was in global circulation in 2020 won't be around in 2024. In North America, cash is projected to account for only 8.7% of all POS transactions by 2024. If you're looking for a cashless society, it's increasingly easy to find.

IMF says central bank digital currencies can replace cash: 'This is not the time to turn back' IMF's Kristalina Georgieva said that the public sector should keep preparing to deploy central bank digital currencies and related payment platforms in the future.