In September 2021, the Better Than CashMoney in physical form such as banknotes and coins. More Alliance (BTCA), a partnership of governments, companies, and international organisations dedicated to accelerating the transition away from cash, published a paperSee Banknote paper. More confusingly entitled ‘UN Principles for Responsible Digital Payments’. “The challenge,” they said, “is for digital payments to be better than cash in all aspects” while going on to suggest that “The world is responding to the urgent need for digital payments because they are swifter, safer, more affordable, more transparent and more efficient than cash.”

Framing the Debate

They have, at least, framed the challenge correctly: Digital payments do indeed have a long way to go “to be better than cash in all aspects”. But whether or not there is ‘an urgent need for digital payments’ or that digital payments are ‘swifter, safer, more affordable, more transparent and more efficient than cash’ are points of view, not facts, that can be debated. To imply, as BTCA has done here, that they are fundamental ‘truths’ is misleading.

No one denies that digital payments have made enormous inroads over the past decades as evidenced by World Bank datashowing that the share of adults holding a bank account rose globally from 62 percent in 2014 to 69 percent in 2017. And the ongoing pandemic has seen an acceleration of the digitisation of moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More. But does this make digital payments better than cash?

The massive increase in cash in circulation during the pandemic illustrates global trust in banknotes and coins which remain a safeSecure container for storing money and valuables, with high resistance to breaking and entering. More haven in uncertain times. In times of insecurity, people tend to increase their precautionary holdings of cash to be prepared for whatever lies ahead. And cash is the first step in financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More, which according to the  United Nations Capital Development Fund (UNCDF), is positioned prominently as an enabler for eight of the seventeen 2030 Sustainable Development Goals (SDGs).

The Digitisation of Money Generates new Risks

But the BTCA’s paper conflates the benefits of digital payments with mobile money and the wider rationale for financial inclusion without addressing the potential downsides. One is left wondering who they are trying to convince, and why? Is it that half of the world’s adult population who did not make a digital paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More last year? Ministries of Finance? Central Banks? Or private providers? Couched in the language of social equality and poverty reduction, issues such as lack of Internet access, the prohibitive cost of smartphone data plans, exploding rates of fraud and growing indebtedness, are all left unaddressed. And no mention is made at all of the resilience of cash in times of disaster or the fact that over 90% of digital transfers made in low-income societies are converted into cash prior to purchase. These are inconvenient truths deliberately not addressed.

Digital Payments are Far from Meeting the Principles

Looking at the nine principles in turn, the following observations can be made:

1. Treat users fairly: Those currently underserved by formal financial services face higher barriers to adoption and suffer more keenly if funds go astray. According to a Bank for International Settlements Report, African Americans are less likely to have bank accounts than other groups in the US, and the same is true for the poor in Europe.  Cash on the other hand does not discriminate.
2. Ensure funds are protected and accessible: Users rightly expect their money to be safe and readily available. Today, too often, this is not the case. On 25 June, German payments processor Wirecard admitted that EUR1.9 billion had disappeared from its escrow accounts, not only leading to the arrest of its CEO but also to the investigation of the German financial regulator by the European Commission.
3. Prioritise women: Governments and the private sector are increasingly aware of the transformative power of female enfranchisement on digital payment platforms. But women are the first to suffer from financial exclusion. Women are over-represented amongst the unbanked and account for 56 percent of all unbanked adults. In some countries women are not allowed to open a bank account. For them cash is the only option.
4. Safeguard client data: Preventing the misuse of data is fundamental to developing trusted digital payments. Current data protection and privacy models are anchored in consent. However, confusion over data ownership and bias means that informed consent remains elusive. The European Consumer Association BEUC said “Cash is the only means of payment protecting privacy and ensuring social inclusion.”
5. Design for individuals: Billions of people remain excluded from digital payments. Providers typically design for the tech-savvy user, neglecting the diverse range of needs among the underserved. On the other hand, banknoteA banknote (or ‘bill’ as it is often referred to in the US) is a type of negotiable promissory note, issued by a bank or other licensed authority, payable to the bearer on demand. More developers have developed many tools to make cash more accessible including tactile features or apps for the blind and visually impaired or colour codes for the illiterate.
6. Be transparent, particularly on pricing: Misunderstanding fosters distrust. Distrust breeds reversions to cash. It is relatively easy to offer basic banking products like savings and loans through smartphone apps. But, as Martin Wolf of the Financial Times points out, the problem is that digital access and financial literacy are unequal, even in high-income countries. According to Eswar Prasad, Professor of Economics at Cornell University, “This means that if the pitfalls of these products are not fully explained, you might end up with the relatively less well-off taking on much more risk than they realise they’re taking on.” If users don’t know the cost of various methods of payment, they can hardly be in a position to give their consent, ‘informed’ or otherwise.
7. Provide user choice through interoperability: These silos preclude digital payments from achieving the same convenience, affordability and utility as cash. Cash works anywhere, anytime and for everyone. It is not subject to technological breakdowns or failures.
8. Make recourse clear, quick and responsive: Today, too often recourse systems are archaic. Redress of grievance and compensation for fraud will need to be addressed systematically. The US Public Interest Research Group noted in June 2021 that consumer complaints about payment apps such as PayPal, Venmo, and Square have surged during the pandemic.
9. Champion value chain accountability: Accountability and responsibility are evolving to become shared along the value chain. But consumers don’t know who is accountable for what or what the real costs are. This is not just about the cost of payments or cyber-fraud but about how cash, has the potential to be a major influence on civil liberties.

The word ‘trust’ comes up a lot in BTCA’s statement of principles. It should, because it demonstrates that there is a lot about the digital payments ecosystem that cannot yet be trusted. And the likelihood is that, with fraud and household indebtedness rising exponentially, this will remain the case for the foreseeable future. Building trust in digital payments is a perfectly commendable effort, but this cannot be done to the detriment of cash. Cash is the foundation of the monetary system and the only form of central bank moneyA liability of a central bank, including banknotes in circulation and banks’ deposits with the central bank. More available to the general public.

It is the job of central banks – along with other regulators – to ensure that the revolution in digital payments works for society as a whole, not just those seeking to re-engineer the world in their image.

Cash is a Safeguard

There is no single nature of money. Money has always been diversified in its form: gold and silverWhite, shiny, and soft metal used to mint coins or medals. More; banknotes and coins; central bank and private money…. In the future, we will continue to require a diversified, not singular, monetary system.

We believe that cash should co-exist alongside alternative forms of money because it provides a much-needed diversification and a safeguard against some of the threats and challenges posed by digitalisation. It is inclusive and does not discriminate. It protects individuals’ right to privacy against surveillance capitalism. It protects the most vulnerable against the digital divide. It provides a space for exercising freedom of choice, including against authoritarian regimes.

The discussion should not be limited to technology (its form) but rather to money’s social and economic role (its function). The future monetary landscape needs to reconcile the traditional functions of money with a positive social and environmental impact: inclusion, resilience, sustainability and protection of individual privacy. Today, only cash ticks these boxes.

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