The global shift toward a cashless world is well underway, with digital payment systems, cryptocurrencies, and mobile wallets gradually replacing traditional fiat currencies. From small retail purchases to trans-border trading, cash is less relevant to daily life. However, this shift that is presenting unprecedented opportunities and enormous challenges for governments, enterprises, and the public alike. Let's see how this change is reshaping the financial landscape and what it reveals about money's future.
What Does a Cashless World Look Like?
Cashless society is a society in which the physical currency (coins and banknotes) is replaced with digital money. Rather than cash handing over, people pay with credit cards, mobile wallets, cryptocurrencies, or even biometrics. Countries like Sweden are leading the way. In 2023, less than 9% of Swedish consumers still paid for goods and services with cash, according to a report by Sveriges Riksbank. Other countries, such as China and South Korea, are following suit at a rapid pace, fueled by technical progress and consumer wants for convenience.
Opportunities of a Cashless Economy
- Increased Financial Inclusion: Digital payments and cryptocurrencies can give financial inclusion to many unbanked people in the world. The World Bank reports that there are still about 1.4 billion people unbanked in the world. Cryptocurrencies can provide a way out of this situation for some members of this population who are potentially excluded from mainstream participation in the global economy because they are unable to have a traditional bank account.
- Enhanced Transaction Efficiency: Digital payment saves time and money on cash handling. In the business context, this means quicker processing and decreased operational costs. According to a McKinsey analysis, companies using digital payment systems have the potential to save up to $1.2 trillion in costs per year by 2030 due to lower transaction cost and enhanced productivity.
- Improved Transparency and Security: Blockchain technology, which is the engine of cryptocurrencies, is the one giving us permanent (immutable) track of every transaction. This transparency reduces the risk of fraud and corruption. Governments can also monitor tax receipts with greater accuracy, and thus also crack down on tax evasion.
Challenges in Moving from Fiat to Crypto
- Regulatory Uncertainty: With the explosive growth of cryptocurrencies, regulators cannot find pace with themselves. There are different levels of attitudes towards crypto in different countries, resulting in an uneven terrain. For example, although El Salvador brought Bitcoin as legal tender, other countries such as China have put strict controls. This inconsistency can deter investors and create market volatility.
- Volatility Risks: Cryptocurrencies are notoriously volatile. Bitcoin, the most traded crypto, ranged from a low of $16,000 to $68,000 for one year. Such volatility poses risks for both businesses and consumers, making widespread adoption challenging for everyday transactions.
- Digital Divide: Not all have internet access or smartphones, which are fundamental aspects of a cashless economy. In rural or less developed regions, absence of infrastructure could leave a gap between the more developed and the less developed economies. A 2022 Pew Research estimate reported that 15% of all Americans continue to forego smartphone use, thereby compromising access to electronic financial services.
How are Businesses and Governments Adapting?
- Adoption of Central Bank Digital Currencies (CBDCs): CBDCs such as digital counterparts of national currencies, are currently being investigated by central banks around the world. Unlike cryptocurrencies, CBDCs are backed by governments, offering the stability of fiat with the convenience of digital. Central banks in Europe (e.g., European Central Bank) and China (e.g., China Digital Yuan) have announced plans for a digital euro and a digital yuan respectively, with plans for launch in 2026 and current testing, respectively.
- Expansion of Digital Payment Infrastructure: Governments and private companies are investing heavily in digital payment systems to ensure a smooth transition. E.g., Transactions through India's Unified Payments Interface (UPI) topped 74 billion in 2022 and thereby brought digital payments into even the most remote locations.
- Blockchain Integration in Financial Services: Financial institutions are nowadays using blockchain to enable secure and traceable transactions. JP Morgan and Mastercard have already been and continue to be implementing blockchain in the global payment seamlessly reducing costs and settlement time.
The Future of Fiat and Crypto Coexistence
Although there is a possibility for a truly cashless society, in the short term fiat is unlikely to be replaced by nothing. However, a hybrid financial system, which includes crypto and fiat, is emerging. This model enables personal and corporate users to freely select from conventional or digital currencies according to their requirements.
For example, in those areas where crypto adoption is yet to take off, fiat money will continue to be the norm. Conversely, tech-forward countries might see widespread crypto integration. According to a Deloitte report, 80% of companies will be accepting both fiat and crypto, leading to a more open and mobile financial system by 2030. To see a cashless future through cooperation between governments, financial institutions and tech companies is needed. By addressing these challenges, we can build a more equitable and effective global economy in which individuals from any background can participate and succeed.
