The Cashless Future

Blog Post
March 14, 2012

Since at least 1996, when James Gleick wrote “The End of Cash” in the New York Times Magazine, there have been predictions, premonitions, and warnings about an approaching cashless world. Last week, as part of the Slate series “The Cashless Society,” Katy Waldman floated a number of different hypotheses about how that world might affect crime.

Waldman points out that since cash can’t be tracked, like “gasoline in a getaway car,” it “fuels all kinds of black market activities.” The government may lose 400 billion dollars in tax revenue annually due to unreported cash payments, she notes. And she quotes Harvard professor Raj Chetty: “The hypothesis that a cashless economy would make crime and under-the-table dealing more difficult is almost certainly true.” However, she also showcases a number of other ideas. For one, she suggests that “stored value cards” may be put to illegal use in lieu of cash. In Latin America some of these cards on not bank-account linked, and thus, “are much harder to track.”

The other arguments: gems and precious metal would also be used as substitutes for cash in criminal activities; a cashless society may increase financial crime—despite the fact that it would be easier to police—because electronic money is easier to move; and hackers would prefer a world with more electronic money. (“So while a cashless society might in fact promote black market business, that business would be more visible and more stoppable.”)

All fine as far as it goes. But what Waldman misses is the role cash plays in the developing world in government payments—in salary, pension, and social protection payments. Because of the high cost of moving, guarding, and distributing cash, developing world governments have been shifting to electronic payments and are set to save millions of dollars by reducing the number of ghost workers, pensioners, and social protection beneficiaries. Even better, we can leverage these shifts to increase financial inclusion for the poorest.

Of course, a cashless world would produce all sorts of behavior that’s hard—or amusing—to imagine now. But even a “cash-light” world will make corruption more difficult, and in the developing world, that will undoubtedly improve governance and the lives of the poor.