In an American economy driven by Silicon Valley, where Americans pay more than half of their bills online, and millennials have taken to online social platforms like Venmo to split the bill for dinner, cash continues to represent nearly a third of transactions in the United States. In fact, though you wouldn’t know it from the ubiquitous swiveling iPads at your local coffee shop, cash is the most frequent method of payment in the US – more frequent than electronic, credit, debit, or check payments. While the expansion of mobile payment platforms, ever-increasing internet retail sales, and cashless innovations worldwide may seem to herald the end of cash, even top executives at Venmo and PayPal do not believe in its imminent demise – “I would never predict the death of cash over the next decade or two,” PayPal CEO Dan Schulman recently forecast. Recently proposed legislation across the United States supports Mr. Schulman’s prediction, as a number of state and city legislators are seeking to mandate that retailers continue to accept cash.
Though cash has retained its preeminent status in the United States, and remains dominant across much of the developing world, a coalition of good governance, tech, and payment industry advocates continues to push for its demise in favor of a cashless economy. Though their advocacy touches on arguments ranging from public health to curbing illegal immigration, these proponents of going cashless tend to focus on the vast potential for increased security and economic efficiency.
Perhaps the most visceral of their arguments is the idea that the absence of cash on hand would greatly reduce the risk of thefts and robberies of retail stores and individuals. In addition, many retailers have noted the economic inefficiencies inherent to cash businesses, including hiring armored-truck pickups, paying banking fees, compensating employees for the physically accounting for large amounts of cash, and dealing with human error.
Other advocates claim additional benefits. Many anti-corruption and good governance groups have expressed optimism that a reduction in cash transactions may help to prevent financial crimes such as money laundering or tax evasion. Kenneth S. Rogoff, former chief economist of the IMF and author of 2016’s “The Curse of Cash,” believes that in addition to reducing corruption both in the United States and in countries where the U.S. dollar serves as an unofficial currency, there are a number of ancillary public policy benefits. For example, the phasing out of cash might serve as an effective deterrent to illegal immigration, since the wages of undocumented workers are generally paid in cash. Additionally, Mr. Rogoff argues, the removal of cash would allow for more proactive and experimental government responses during economic crises, such as negative interest rates. Still other experts have pointed to the health benefits; cash is a prime bacterial conduit and disease carrier.
There is, of course, also an element of self-interest for many advocates of a cashless society. Bills mandating cash acceptance have faced intensive lobbying from the credit card industry as well as more tech-focused retailers. The passage of the New Jersey legislation exemplifies such forces at work. The bill’s sponsor specifically criticized a recent Visa initiative that rewarded 50 businesses with $10,000 each for making their operations cashless. The legislation’s passage was also threatened by several large retailers experimenting with cashless stores, whose influence forced the shelving of the bill last summer. Consumer advocates have argued that any decline in the use of cash is a step toward growing monopoly power for credit card companies, who could charge increased swipe fees out of proportion to actual costs.
Detractors of cashless societies, as well as consumer advocacy groups, have made a range of practical and moral arguments in opposition to phasing out cash transactions. On the practical end of the spectrum, they have contended that corruption has done just fine in the digital age. Digital finance has created new concerns related to corruption, including data privacy, cybersecurity, the anonymity of cryptocurrency transactions, and more.
Privacy advocates warn about handing over our financial lives, not to mention the global economy, to corporations and governments. They argue that the recent furor over corporate America’s handling of data privacy issues is evidence of the risks of sharing important personal and financial information. Meanwhile, the Chinese government’s extensive monitoring of its citizens’ purchases and debts in order to dole out “social credit scores” exemplifies the risks involved in trusting governments to regulate such systems. In both cases, there is a high degree of concern that going cashless would expose the financial system to capture by some variant of the surveillance state.
On the moral end of the spectrum, there is concern for the unbanked and underbanked. Thirty percent of United States households fall within this category, inclusive of over 14 million unbanked adults and 48.9 million underbanked adults (a category that includes those who have a checking or savings account, but used at least one of money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawn shop loans, or auto title loans in the past 12 months). Councilmember Ritchie J. Torres, the sponsor of a proposed ban on cashless retailers in new York City, to declare cashless policies both classist and racist: “cashless business model[s] … will have the effect of excluding lower-income communities of color from what should be an open and free market.”
Although arguments over going cashless in the United States remain largely hypothetical, countries around the world are rapidly approaching such an outcome. Sweden in particular has become the prime example of this drive. Only about 10 percent of Swedish consumers paid for something in cash in 2018, with bills and coins representing only 1 percent of the Swedish economy. In the developing world, Kenya too has been anointed a cashless success story. Kenya’s mobile payment company, M-Pesa, counts a majority of Kenya’s population among its customer base, and sees a quarter of Kenya’s GDP running through its systems. In Sweden, financial institutions have realized revenue gains from the transition to a more FinTech-based economy, while in Kenya estimates indicate that M-Pesa has lifted 2 percent of the population out of extreme poverty.
Despite these successes, each country offers cautionary tales. In Sweden, going cashless has had an adverse impact on elderly and rural populations. Transitioning to online and mobile payment systems requires a degree of tech savvy, and tech accessibility, often lacking in these demographics. In addition, the Swedish government continues to be concerned about the risk to the financial system from a cyberattack or attack on the nation’s power grid. Kenya faces similar concerns, as well as wariness over the outsized impact that one corporation now has on the nation’s economy. Arguments also persist over the potential classist impacts of the new financial environment, and the trade-offs related to data privacy.
Legislation in the United States
In recent weeks, legislators across the United States have taken their own steps to forestall cash’s obsolescence. In early February 2019, the New Jersey legislature passed a bill requiring that retailers must accept cash from customers. Violators will face penalties of $2,500 for the first offense and $5,000 for the second offense, with any further violations falling under the state’s consumer fraud act. The legislation specifically excludes from the cash acceptance requirement those transactions made online, by telephone, or by mail. In addition, retailers inside airports are not required to accept cash.
Assuming that the bill, which passed with near-unanimous support in the state house and senate, is signed by Governor Phil Murphy, New Jersey will become the second state, after Massachusetts, to enshrine the acceptance of cash in state law. The Massachusetts law, although rarely enforced, has been on the books since 1978 and prevents retailers from “discriminat[ing] against a cash buyer by requiring the use of credit.” The cities of New York, Philadelphia, Washington, D.C., and even San Francisco, are all considering mandatory cash acceptance legislation of their own. A similar proposal was introduced last year in Chicago, albeit unsuccessfully. The sponsors of these proposals, when introducing their bills to the public, have tended to focus on the need for an accessible and inclusive financial community.
If you haven’t gone cashless, you might look at a dollar bill in your pocket and consider the preemptive effect of the statement “this note is legal tender for all debts, public and private.” Case law has indicated, however, that prior to the completion of a transaction, no debt has been incurred – limiting the impact of this pronouncement printed on all greenbacks and reproduced in U.S. Code. In addition, Treasury Department guidance states that refusing cash may be allowable “on a reasonable basis, such as when doing so increases efficiency, prevents incompatibility problems with the equipment employed to accept or count the money, or improves security.” As such, state and city legislation has been cropping up in the absence of specific federal regulations in this area.
Though cash is far from buried in the United States, it is also now far from king. It remains to be seen whether legislation like that passed in New Jersey earlier this month – and currently under discussion in New York, Philadelphia, Washington, and San Francisco – is a harbinger of the renewed importance of cash transactions to the American economy, or the final gasps of a gradually fading economic model. DWT will continue to monitor developments in this space with regard to ongoing legislative activities and industry trends more broadly.