The Future of Cash
The main objective of the paper is to critically analyse the statement provided by the
Bloomberg article of economists agreeing to a ‘cashless society’ and critics rejecting such
idea. There is said to be some pros and cons to this idea of a ‘cashless society’ and there are
currently countries that are already in the direction of becoming a ‘cashless society’ which
are Sweden, China, India and Australia. During these times, we are currently moving into a
‘cashless society’ as technology progresses leaving the future of cash to a ‘dead end.’
However, there are is some problems connected to this as it would be difficult for those in the
developing countries who do not have the technology advances that could place them in the
same technological position as those in the developed countries. Furthermore, the paper will
examine the pros and cons of the ‘cashless society’.
To understand the future of cash, there needs to be a background to how money and cash
began. Money is described as anything accepted as payment for goods or services. Money is
known to have three functions;
1. Act as a medium of exchange- used to pay for goods and services and an efficient
way for the economy to exchange payments minimizing time spent on it.
2. Unit of account- measures the value in the economy and the value of goods and
services in terms of money.
3. Store of value- used to save purchasing power from when income is received until it
is spent.
Money is the most liquid asset as its main objective is to function as a medium of exchange
however, it loses value during inflation. Money has always been a major role of our human
history for centuries. It was first the barter economy where individuals trade goods and
services in exchange for other goods and services. With this type of exchange, the transaction
costs are higher especially in developing countries when there are times of monetary crisis
when the currency becomes less valuable due to hyperinflation. The barter economy occurred
during 9000BC and within that economy, trading goods for other goods would take time as
the other party would have to believe that the good offered is a fair trade and if not then they
would have to negotiate a fair deal to both parties. By 600BC, Lydia's King Alyattes began
the first official currency which helped increase internal and external trade.
, th
From currencies, the Chinese began to create banknotes. It started in the 7 century during
the Tang dynasty. China was so ahead with its advances, it encountered inflation leading the
country to get rid of the paper money for several hundred years. Europe only began using
paper money 400-700 years after Chinese. The paper money is deemed valuable as we ‘trust’
it to be valuable. Governments implemented the paper money as the legal tender derived
from the “relationship between the demand and supply rather than the material the money is
made from” (Investopedia) in other words, the fiat money is subjected to having no intrinsic
value and just ‘paper money’ that could lose its value during hyperinflation and cannot be
converted to either gold or silver but yet it is still valuable due to government maintaining its
value. To come to terms with it, fiat money is a paper money that is valuable by government
and by law it is classified as money.
In response to the ‘paper money’ it is said to be a blessing and a curse. Rogoff, (2017) stated
how “without the paper money there would be no German hyperinflation or world war II”
and how with the success of the paper money it is still dominated in the world’s economies
today.
Bloomberg ‘end of cash’ article described of an event of when entrepreneur Frank McNamara
visited a restaurant in New York and his wife paid the tab however revealing an idea when he
returned to the same restaurant paying with a small cardboard card. This has brought about
the credit card manufacture and banks began to implement the idea of credit cards allowing to
purchase for goods and services on credit. This idea helped with the issue of carrying cash at
hand, instead, with a credit card allows you to borrow money against a line of credit to a
point of a credit limit. A credit limit is “generally based on a number of nonexclusive factors,
the most important of which are often the cardholder's earning capacity and credit history.”
(Huennekens et.al ;2008)
Credit cards have high interest rates, and your credit card balance and payment history can
affect your credit score plus most of your purchases would have to be signed off. Instead, a
debit card would be a better option which is like the credit card, moreover, transactions of the
debit card comes directly from the user’s bank account. Debit cards started to arise in 1966
and are still in use more often today. Including a swipe fee with a debit card usage, federal
reserve survey provided evidence of consumers using an average of swipe fee off 44 cents
calculating to a $16.2 billion in 2009 for prepaid and regular debit cards. (marketplace)
The main objective of the paper is to critically analyse the statement provided by the
Bloomberg article of economists agreeing to a ‘cashless society’ and critics rejecting such
idea. There is said to be some pros and cons to this idea of a ‘cashless society’ and there are
currently countries that are already in the direction of becoming a ‘cashless society’ which
are Sweden, China, India and Australia. During these times, we are currently moving into a
‘cashless society’ as technology progresses leaving the future of cash to a ‘dead end.’
However, there are is some problems connected to this as it would be difficult for those in the
developing countries who do not have the technology advances that could place them in the
same technological position as those in the developed countries. Furthermore, the paper will
examine the pros and cons of the ‘cashless society’.
To understand the future of cash, there needs to be a background to how money and cash
began. Money is described as anything accepted as payment for goods or services. Money is
known to have three functions;
1. Act as a medium of exchange- used to pay for goods and services and an efficient
way for the economy to exchange payments minimizing time spent on it.
2. Unit of account- measures the value in the economy and the value of goods and
services in terms of money.
3. Store of value- used to save purchasing power from when income is received until it
is spent.
Money is the most liquid asset as its main objective is to function as a medium of exchange
however, it loses value during inflation. Money has always been a major role of our human
history for centuries. It was first the barter economy where individuals trade goods and
services in exchange for other goods and services. With this type of exchange, the transaction
costs are higher especially in developing countries when there are times of monetary crisis
when the currency becomes less valuable due to hyperinflation. The barter economy occurred
during 9000BC and within that economy, trading goods for other goods would take time as
the other party would have to believe that the good offered is a fair trade and if not then they
would have to negotiate a fair deal to both parties. By 600BC, Lydia's King Alyattes began
the first official currency which helped increase internal and external trade.
, th
From currencies, the Chinese began to create banknotes. It started in the 7 century during
the Tang dynasty. China was so ahead with its advances, it encountered inflation leading the
country to get rid of the paper money for several hundred years. Europe only began using
paper money 400-700 years after Chinese. The paper money is deemed valuable as we ‘trust’
it to be valuable. Governments implemented the paper money as the legal tender derived
from the “relationship between the demand and supply rather than the material the money is
made from” (Investopedia) in other words, the fiat money is subjected to having no intrinsic
value and just ‘paper money’ that could lose its value during hyperinflation and cannot be
converted to either gold or silver but yet it is still valuable due to government maintaining its
value. To come to terms with it, fiat money is a paper money that is valuable by government
and by law it is classified as money.
In response to the ‘paper money’ it is said to be a blessing and a curse. Rogoff, (2017) stated
how “without the paper money there would be no German hyperinflation or world war II”
and how with the success of the paper money it is still dominated in the world’s economies
today.
Bloomberg ‘end of cash’ article described of an event of when entrepreneur Frank McNamara
visited a restaurant in New York and his wife paid the tab however revealing an idea when he
returned to the same restaurant paying with a small cardboard card. This has brought about
the credit card manufacture and banks began to implement the idea of credit cards allowing to
purchase for goods and services on credit. This idea helped with the issue of carrying cash at
hand, instead, with a credit card allows you to borrow money against a line of credit to a
point of a credit limit. A credit limit is “generally based on a number of nonexclusive factors,
the most important of which are often the cardholder's earning capacity and credit history.”
(Huennekens et.al ;2008)
Credit cards have high interest rates, and your credit card balance and payment history can
affect your credit score plus most of your purchases would have to be signed off. Instead, a
debit card would be a better option which is like the credit card, moreover, transactions of the
debit card comes directly from the user’s bank account. Debit cards started to arise in 1966
and are still in use more often today. Including a swipe fee with a debit card usage, federal
reserve survey provided evidence of consumers using an average of swipe fee off 44 cents
calculating to a $16.2 billion in 2009 for prepaid and regular debit cards. (marketplace)
