Should We Fear a Cashless Society?
In Sweden, cash has almost been made obsolete. Here, most transactions are done electronically, and the economy thrives. In 2008, the economy in Zimbabwe collapsed due to becoming cashless due to hyperinflation. Same technology, yet very different results. From this, we can learn that cashlessness is not inherently bad. The issue is more with the institutions implementing it. Whether we should fear a cashless society depends entirely on the country.
The Real Dangers
First, the system can collapse. Digital money relies entirely on banks and networks that can fail. Lehman Brothers and Silicon Valley Bank seemed stable until they weren't. When financial institutions collapse, digital money becomes worthless. Cash works whether the power is on or off, whether banks are solvent or not. A large cyberattack on Visa or Mastercard could freeze global commerce in days. Carl Menger's theory of money explains that money must be universally acceptable without requiring verification from an intermediary. Cash does this automatically. Digital money requires trust in institutions that fail. This isn't just about banks either—a natural disaster, a solar flare, or an infrastructure failure at a critical node could trigger a cascading collapse across interconnected systems.
Second, it neglects poorer people and excludes them from the economy. About 1.4 billion people do not have bank accounts, concentrated in rural areas and low-income countries. Research across 123 economies using probit regression shows that digital infrastructure helps wealthy people far more than poor people. Rural households remain 12 per cent behind urban ones even as infrastructure improves (Demirgüç-Kunt et al., 2022). More troublingly, the poorest 20% (the 1st quintile in Figure 1) of people spend roughly 57% of their income on digital access like phones, internet, and account fees. The richest 20% (in the 5th quintile in Figure 1) spend about 2%. That's a 30-to-1 ratio. When Britain shut down ATM networks after 2017, businesses in deprived areas lost significant revenue despite having internet access (Link, 2023). Going cashless doesn't lift the poor—it excludes them completely. There's also a cognitive burden: digital systems demand understanding of security, fraud detection, and password management. For people with limited education, this creates real barriers that infrastructure alone cannot solve.
Figure 1 shows two regression models that I coded in Python. The graph on the left shows the predicted probability of having a bank account by digital infrastructure quality. It also shows the comparison between rural and urban households, and it uses data from the World Bank. However, the right panel shows how digital access costs take up different proportions of household income. It compares the percentages across different “quintiles”. This graph shows us the access gap and the burden on the poorest people, which is much larger than the other quintiles.
Third, it enables unprecedented total surveillance. Aggregated transaction data reveals everything about a person: religious belief from donations, political orientation from protest purchases, health status from pharmacy visits, and fertility status from contraception purchases. India used payment data to identify protesters and targeted their families during 2019-2020 demonstrations (Banerjee, 2020). China enforced spending restrictions on its digital currency so citizens cannot purchase certain goods (BIS, 2023). Hayek identified this risk: privacy in economic life is not a luxury but a prerequisite for political freedom. A citizen who cannot transact privately cannot organise dissent or support unpopular causes (uphold their beliefs). There's also what economists call a 'commitment problem’ where voters might accept cashlessness today for the increased efficiency, but discover later that the surveillance infrastructure is irreversible. Once digital architecture is built, reverting becomes politically and technically impossible.
In addition to this, cash is important as it keeps many informal markets afloat. At first glance, this may be a bad thing, as these transactions are not taxed; however, many informal markets provide essential goods, food, and services in underdeveloped countries, whose governments do not provide them cheaply. For example, in the Brazilian favelas, cash provides millions for the Brazilian workers. By moving towards a cashless society, we would be eliminating all informal economies around the world, leaving many workers helpless.
When Should You Actually Worry?
System collapse matters less in wealthy countries with backup infrastructure and resources. Sweden can recover from a network failure within hours. Poorer countries might not recover for months or years. Financial exclusion is less of a problem if everyone already has digital access. In Scandinavia or North America, almost everyone has access to a phone and a bank account. In rural Africa or Southeast Asia, most people don't. Surveillance matters less if your government is actually constrained by law. In democracies with independent courts, free press, and real data protection laws, courts can block illegal surveillance, and journalists can expose abuses. In countries where the government operates outside the law, there's no legal brake on surveillance. Institutional quality is sticky—determined largely by a country's history (Acemoglu et al., 2001). You cannot quickly build trustworthy institutions just by deciding to go digital.
Going deeper, cashlessness creates a 'single point of failure.' With cash, the system is redundant and decentralised. With digital, everything funnels through a few companies and governments. Visa and Mastercard handle 90% of global transactions (BIS, 2022). This creates extreme vulnerability. Network science shows that scale-free networks—fail catastrophically when hubs are disrupted (Barabási & Albert, 1999).
Another overlooked challenge is the issue of monetary sovereignty. With the adoption of cashless systems, governments will find it difficult to exercise monetary policy in the case of foreign digital currencies or private stablecoins replacing their national currency. The case of El Salvador with Bitcoin highlights this risk (IMF, 2022).
The Economic Case
There are some clear economic advantages to digital payments. They are estimated to be cheaper to process by around fifty per cent compared to cash transactions (Humphrey et al., 2003). They minimise tax evasion since the underground economy enabled by anonymous cash could amount to fifteen to twenty per cent of GDP (Rogoff, 2016). With a digital currency, central banks gain more effective policy tools.
So Should You Fear It?
For Scandinavian countries, fears are minimal. For middle-income countries, concerns are justified. For authoritarian regimes, risks are severe due to surveillance and control.
What Actually Makes Sense
The correct strategy would be optionality: allow cash to remain legal indefinitely while expanding digital systems. Evidence from M-Pesa shows digital finance works best when combined with cash.
Conclusion
Whether we should fear a cashless society depends on institutional structures. The optimal policy is to maintain both systems rather than fully replace cash.
References
- Acemoglu, D., Johnson, S. and Robinson, J.A. (2001)
- Banerjee, S. (2020)
- Barabási, A.L. and Albert, R. (1999)
- BIS (2022, 2023)
- Demirgüç-Kunt et al. (2022)
- Humphrey et al. (2003)
- IMF (2022)
- Link (2023)
- Rogoff (2016)