“Dispense with a horse and save the expense, care and anxiety of keeping it,” read the first automobile advertisement in 1898. An early term for these motorcars was “horseless carriage,” which suggested that the innovation was unencumbered by the previous limitation of a living horse. I like to picture early car enthusiasts trying to overtake a horse cart on a country road while shouting, “Make way for the future!”
Now, much like the car salesmen in the past, purveyors of so-called cashless payments — all those bank cards, fintech platforms, and mobile apps that facilitate the transfer of digital dollars between accounts — are presenting cash as the horse-drawn cart of payments, saying that it survives only through the stubborn nostalgia of laggards. In a 2016 Super Bowl ad, PayPal launched an attack on “old money,” contrasting it to a world of digital “new money.” Players such as Visa and PayPal present digital money as an update to cash — the former even entered into a deal with the NFL to promote a cashless Super Bowl in 2020. Like the term “horseless carriage,” the term “cashless payment” implies that some previous hindrance has been shaken off. And why hold on to an inferior system?
This denigration of cash has been effective. In major cities across the world, a rash of shops have started to go cashless, especially in the wake of COVID-19. In the UK, for example, cash usage collapsed by 50% in 2020 as cash users were rejected by stores that refused to take their physical money.
But cash is not an inferior system, and the idea that cash is the “horse-drawn cart of payments” is both misleading and dangerous. In fact, this rush to make the world cashless could result in millions of people getting entirely cut out of the global economy. Even people who prefer card or app payments should reject a totally cashless world. It’s a world where even the tiniest of payments will have to travel via powerful financial institutions, which leaves us exposed to their surveillance and control — and also their incompetence. A payments system without cash is one dependent on banks that are prone to financial crises, systems failure, and cyberattacks.
The casino chips of the economy
Unlike the move from horse-drawn carriages to cars, digital bank transfers are not an upgrade to the current government cash system. That’s because the cash-based system underpins its “cashless” counterpart. The easiest way to understand this is through an analogy. Are casino chips an “upgrade” to the cash you might hand over to get them? No. A casino chip is a limited-purpose form of money, issued by a casino. But if you weren’t able to redeem a chip for cash, it would be worthless.
Western Reserve Historical Society
Many people don’t realize that mainstream digital money is similar. The units you see in your bank account are “digital chips,” issued to you by your bank, which you control with your payment card or mobile app. The entire digital-payments system — facilitated by companies such as Visa and Mastercard — is an elaborate network for transferring these bank-issued chips around, but they remain psychologically — and legally — anchored to the cash system. When you go to an ATM to withdraw cash, you’re demanding the redemption of your chips.
It’s not clear whether the digital monetary system could even exist without access to cash. The digital chips promise you government-issued dollar bills, and that promise is empty if you can’t get those from the ATM. Despite this, banks in many countries are hoping that people slowly forget that they have a right to get their money out of the banking system, closing down ATMs and retail bank branches and effectively blocking the exits to the system. While older generations still make a clear distinction between “money outside the bank” (cash) and “money inside the bank” (digital bank chips), many younger people forget that there is an outside, and future generations may never know any better. As this progresses, we’re getting locked into financial institutions that can watch us, influence us, and constrain us via their chokehold on the payments infrastructure.
Don’t put all your eggs in the digital basket
Promoters of a cashless society paint cash as an out-of-date impediment — much like those horse-drawn carriages blocking the road for cars. Yet in reality, there’s no conflict maintaining both cash and digital money systems. Unlike horse carts versus motorcars, cash runs on entirely different tracks to digital payments. It’s a parallel system, and from a user’s perspective, cash is more like the bicycle of payments than the horse cart. Cash may not move as fast or as far as transnational digital systems, but it’s great for short outings, it’s more inclusive, and it certainly comes in handy when the other system gets jammed up.
A digital bank account depends on getting access to the broader banking system, and on that system being maintained. Cash, by contrast, doesn’t crash when the electricity fails or when a cyberattack brings a payments system down. Any society that relies exclusively on digital platforms run by mega-institutions is going to have major resilience problems. If the institutions go offline, you may suddenly find yourself unable to interact with your surroundings. During a 10-hour outage in Visa’s European systems in 2018 — caused by a failure in its primary data center — 5.2 million payment attempts were blocked, which left people who’d become dependent on card payments stranded and searching for ATMs (which are getting harder to find). This is why there’s a major spike in cash demand in the US prior to hurricane landings. People understand that digital systems are insecure, and in a world in which the climate crisis makes extreme weather events more likely, putting all your eggs into the digital basket makes your economy far less resilient.
But even in normal times there are many people who simply prefer cash, especially in informal settings where having digital institutions mediate seems like an overkill. Think of home poker games where friends stuff cash into a common pot, or wooden donation boxes at a community-run museum. Dropping cash into the box is simple, requires no account or digital infrastructure, and works fine in this down-to-earth situation. And why must globe-spanning digital-payments corporations stand between me and a homeless veteran whom I’m trying to give some dollars to?
RICARDO ARDUENGO/AFP/Getty Images
It’s also no secret that there are class dynamics to this: People with more wealth and education are more prone to using digital payments, partly because they have higher trust in institutions such as banks and greater access to them too. A Morning Consult poll from 2021 found that 10% of US adults didn’t have a bank account. You don’t need a sociology degree to see that cashless establishments proliferate first in gentrified areas among more well-off people, and that establishments that start to refuse cash might be covertly trying to discourage poorer customers from entering their premises. If this trend proliferates, we will see a split economy forming, with millions of cash users — including elderly people, ethnic minorities, and privacy activists — pushed into ever smaller enclaves where cash remains accepted.
Despite how crucial it is to maintain an inclusive, multimodal payments system with
nonbank
and non-digital options, our payments system is being driven toward a monoculture. Ads for digital payments don’t say, “Enjoy the speed, convenience, surveillance, cyber-hacking, exclusion, and critical infrastructure weaknesses that our platform brings,” yet that is what lies beneath the surface-level slickness of digital payments.
More power to the banks
One thing should be immediately clear: A major beneficiary of a move toward these digital chips is the
banking industry
. This is precisely why Brian Moynihan, Bank of America’s CEO, openly declared, “We want a cashless society,” adding that his firm has “more to gain than anybody” from a move to digital transactions.
This becomes obvious when you think through the differences between cash and card or app transactions. The former is localized, happening here and now between two people through the simple act of handing over a bill. A digital bank transfer, by contrast, is never localized: It’s set in motion through a device — a card, phone, or computer — which communicates with a distant bank data center. So-called cashless transactions take place between two banks that act on your behalf, and which insert themselves between buyers and sellers. And this has serious privacy implications.
Firms such as Bank of America are excited about a cashless society because digital payments not only bring them fees but also vast amounts of data about who transfers how much to whom. Financial institutions find this data extremely useful in profiling customers — information that can be used to cross-sell products to them or to decide who gets loans — and major tech players, such as Google, can use it to track, for example, how effective their online advertising is. As commercial players build up these financial data dossiers on people to make a profit, it opens the way for governments to pry into the accumulated information as well.
Horacio Villalobos/Corbis/Getty Images
In the cashless society that Moynihan and other executives seek, anyone who can’t secure a bank account — or anyone who gets blacklisted by banks — effectively gets screened out of the economy. This could happen if you’re part of a minority group that banks simply deem not profitable enough to offer accounts to, or it could happen for political reasons. One major concern about the rise of cashlessness in authoritarian countries is that banks can be ordered to, for example, stop political dissidents or pro-democracy campaigners from buying particular things from particular people.
During the Hong Kong protests of 2019, activists stood in lines to buy subway tickets with cash, just in case their card payments were monitored for evidence of them traveling to protest sites. In a cashless society, their payments could be not only watched but also blocked to prevent travel. We see a limited-scale example of this paternalism in the Australian “cashless welfare card,” which prevents welfare recipients from buying alcohol and other non-approved goods from non-approved establishments. It also prevents them from withdrawing cash to get around the restrictions.
Cash fuels decentralization
But perhaps the most overlooked element of this story is the fact that the attack on cash is an attack on the local businesses that form the backbone of communities. One critique leveled at the Australian cashless welfare card is that it pushes people away from supporting local cash-based businesses and funnels them toward bigger retailers that work with Mastercard and Visa. Cash is by nature localized in its movement, and it’s not likely to end up being used to support a faraway tech giant. In past decades it was normal for people to hand over cash to local storekeepers, but the growing norm today is for people to transfer digital bank chips to distant corporations, such as Amazon.
Harper Business
The major beneficiaries of a cashless society are not only the banking and fintech players in big cities but also big tech companies. And while a plethora of digital-payments companies and apps now available might give the illusion of diversity in that realm, they’re all built on the same underlying banking oligopolies; it’s standard practice for fintech players to quietly partner with
But what about cryptocurrency? One of the claims made by the growing crypto industry is that digital tokens, such as bitcoin, provide a counterforce to the banks’ digital-payments system and help to “democratize” digital finance away from large institutions. The vast majority of people who hold bitcoin, though, see it as something to be bought and sold for dollars, rather than a form of money itself. And even when it’s used for exchange, people rely on its dollar price to decide how much of it to hand over. Crypto tokens face all the same hacking and resilience problems as any digital system, and they also subject users to wild and destabilizing swings in price as they get traded on speculative markets. There’s a place for crypto, but fixating on it is a distraction.
The world’s most vulnerable people rely on the already existing, physical cash system, and our priority should be to protect that system. But this campaign to protect cash is also in the interests of those who enjoy digital platforms. The fight for bicycle lanes in cities dominated by cars is not an anti-car move — car lovers also benefit from the reduced congestion and the option to use their bicycle from time to time. Similarly, we need to fight for cash infrastructure and pro-cash laws in order to prevent our economies, and our lives, from becoming totally dependent on a single set of digital giants. You may enjoy Venmo and
Cash App
in the short term, but in the long term, it’s in everyone’s interests to maintain an offline, inclusive, and localized form of money that you can switch to when the chips are down.
Brett Scott is a journalist, monetary anthropologist, and former financial broker. He is the author of Cloudmoney: Cash, Cards, Crypto and the War for our Wallets (2022).
Sections of this article were excerpted from the book “Cloudmoney: Cash, Cards, Crypto and the War for Our Wallets” by Brett Scott. Copyright © 2022 Reprinted by permission of Harper Business, an imprint of HarperCollins Publishers.