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The cost of going cashless

Categories : Cash is trust
June 20, 2017
Tags : Cash substitution, Cashless, Central Bank, Virtual currencies
Governments are striving to promote digital payment instruments, but are cautious not to mention their multiple drawbacks.
Communication Team / Equipo de Comunicación
In recent years, many governments have been actively promoting the use of digital payments and encouraging the demise of cash. To motivate the shift to cashless, the critics of paper money usually assert that the removal of banknotes will help reduce tax evasion and criminal activities and boost the economy by speeding up the transaction flow. 
Nevertheless, several factors often go unmentioned. First, abolishing cash will create discrimination. Low-income workers paid in cash will be clearly disadvantaged compared to the rest of the population and will have to adapt to a new system. This also applies to the younger generation that is unbanked and to the elderly, often not familiar with digital technologies. The demonetisation carried out in India last year clearly demonstrated that the removal of cash has a negative impact on social and financial inclusion.
Moreover, banning cash would certainly not help fight against criminals as they will just find another way to conduct illegal transactions. Bitcoin – the digital currency that enables anonymous operations – could represent an effective alternative for them. In addition, tax evaders might convert their cash funds into gold or other precious metals, which would thus only displace the problem. 
Furthermore, fin-tech companies are striving to demonstrate the efficiency of their technology but there is still no evidence that electronic transactions are actually more efficient and cost-effective than cash. Indeed, studies led in Europe demonstrated that cash generates the lowest cost per transaction in various countries. Besides, a fully digitalised system would be extremely vulnerable to hackers and system failures.
Finally, the removal of tangible money would enable central banks to exercise a full control over interest rates, something that cannot be done today. At present, citizens still have the possibility to withdraw cash to circumvent negative rates and avoid having their savings charged with fees. In any case, governments should always leave consumers free to choose between various payment means, regardless if the payment is virtual or tangible. 
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