Cashless society: What kind of future, and how inevitable?

Lowkey macro shot with old credit card.

On my recent trip to Sweden, I saw the cashless society in action. By one estimate, only 1% of the Swedish economy now operates on bills and coins. That’s a tenth of the rate elsewhere in Europe, and one-eighth of the rate here. The New York Times says only about 1 in 10 Swedes paid for anything in cash last year, and I hardly recall seeing any of them while I was there.

For years, Sweden’s rush towards cashlessness has been heralded as a welcome and inevitable herald of the future everywhere. I wonder, though — and it appears I’m not alone. Hot on the heels of our neighbors in Philadelphia, New Jersey recently banned most brick-and-mortar retailers and restaurants from refusing to accept old-fashioned green Federal Reserve legal tender. (There are some sensible exceptions — for example, rent-a-car companies and parking garages.)

I’m sure there’s a bit of old-fashioned Luddism at work here: grumpiness with the march of progress, and all that. But there are also some eminently reasonable reasons why policymakers are pushing back against the death of cash.

File photo
James Barrood.

Most obviously, requiring plastic tends to discriminate against lower-income people without credit cards or bank accounts. Even though there are fewer “unbanked” and “underbanked” Americans than five years ago, it’s still 5% and 18% of us, respectively, and that includes many millions who possess no credit cards, either. One key goal of the fintech revolution is to improve financial inclusion, and I’m proud that fintech firms have prioritized that. But, until fintech ushers in that new era, should paying customers be barred from stores or restaurants just because they don’t carry Mastercard, Visa, AmEx, or Discover?

Then, there’s privacy: one reason many people who could use plastic still prefer not to. Dare the financial services and technology industries tell people their information is absolutely safe with us? Dare we tell them they must contribute to the increasingly sophisticated profiles being built on them when they pay in ways that are easy to electronically link to them? Interestingly, I do recall a conversation with a Swedish marketing executive who was indeed worried about all the data collected and the extinction of privacy. She was certain America would never allow the same type of government surveillance.

We’re only beginning to have the privacy discussion we need to have in our society. Maybe we’ll decide the economist Kenneth Rogoff is right: we no longer want colossal numbers of $100 bills in circulation, where they promote a global underground economy of tax evasion, corruption, terrorism, and drug and human trafficking. But that’s different from telling ordinary people they can’t bring a twenty into Sweetgreen or Amazon Go — two chains that recently backed off plans to go completely cashless.

When digital or online financial systems go down — as happened to Visa throughout much of Europe for 12 hours in June 2018 — cash is the easy legacy fallback. What if it’s not there? What if it’s not there during a lengthy blackout, weather emergency or a sudden financial crisis?

If cash disappears, some Swedish officials wonder, would the state surrender its role as sovereign guarantor — replaced not by some decentralized or democratic force, but by commercial banks? Perhaps a central bank cryptocurrency might replace paper — eventually — but, do we begin to understand the implications?

I like what Sweden’s central bank governor Stefan Ingves told the Times: “it would be wrong to sit back with our arms crossed, doing nothing, and then just take note of the fact that cash has disappeared. You can’t turn back time, but you do have to find a way to deal with change.”

Put another way, cashlessness may be another example of how we need to be more thoughtful and intentional about our technologies — and the disruptions they create. Or our legislators will do it for us.

James Barrood, New Jersey Tech Council.