In the 7th century BC, people used stones and shells as physical cash. Cowrie shells were the most popular, as they were compact in size and easy to transport. Also, pearls, valuable products, furs, and cattle were used as means of payment in the past. Such commodity-exchange relations were not very convenient. It became necessary to create a universal exchange equivalent.
So, in China, paper money appeared, which was the debt paper of urban residents. These debt records are considered to be the first banknotes. At any time, people needed physically tangible objects that played the role of cash money. But in modern realities, physical money, or cash, has faded into the background, giving way to non-cash electronic payments. Does this mean that cash will disappear in the foreseeable future? What is the future of cash? Will money become obsolete for our descendants? Our experts will share their forecasts with you.
Number of non-cash electronic payments in the world
The cashless electronic economy significantly reduces costs and increases the transparency of all payments. In addition, through cashless electronic settlements, the state gets the opportunity to increase tax collection. Settlements without the participation of cash can take the following forms:
- electronic money transfers
- using a letter of credit
- payments using plastic cards (debit/credit)
- collection (settlements using collection orders)
- use of checkbooks.
The impetus for a massive transition to electronic cashless payments was the COVID pandemic. During the quarantine, most purchases were made online. Nowadays, many advanced economies already use practically no more cash when making payments.
The share of non-cash payments in different countries of the world:
- Sweden – 98%
- Norway – 95%
- Denmark – 94%
- USA – 80%
- Germany – 76%
- China – 80%.
China accounts for almost half of all electronic payments in the world. Such indicators were achieved primarily due to the popularity of Alipay and WeChat Pay payment systems. The share of cash payments in the total volume of settlements is slightly more than 20% and continues to decline. Belgium, the Netherlands, and Singapore are gradually moving towards the end of cash. What is the reason for such a desire to push physical cash out of circulation?
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Introduction of Central Bank Digital Currencies (CBDC)
One of the reasons for the displacement of cash from everyday life is the decision of some countries to issue their own electronic digital currency (CBDC) as part of the Central Bank’s infrastructure. Their task is to replace cash in the citizens’ payments in all sectors of the economy. Such electronic money cannot be cashed out, and the Central Bank fully controls its issue and transactions. CBDCs, by their nature, are somewhere between cash and electronic money. Compared to cash, this electronic digital currency cannot be counterfeited, and the speed of transactions with it is significantly reduced. The issuance of CBDC allows the state to save on the costs associated with the issuance and logistics of physical cash.
Disadvantages of cash
With the advent of non-cash electronic payments, the shortcomings of cash became more pronounced. Cash banknotes or coins can be stolen or carry dangerous germs. In addition, they can be lost. In addition, cash will not bring interest, will not improve the credit rating, and will not cause cashback, as in the case of using plastic cards.
All over the world, there is a so-called marginalization of cash. If a person making a large purchase or payment pays in cash, then questions often arise about the origin of these funds. Increasingly, people associate wads of cash money with criminals. It is believed that a person who has nothing to hide will not oppose cashless electronic payments.
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Should cash currency be eliminated? At the state level, governments try to exclude cash from circulation because the main advantage of physical money is the ability to remain anonymous. The criminal economy is entirely based on suitcases with banknotes and quick settlements in illegal transactions.
Benefits of cashless payments
Since Mastercard was first issued over 70 years ago, the world has gradually changed in terms of attitudes toward cashless payments. This process was not very fast, but still, most users managed to appreciate all the benefits of paying without using physical cash money. In the 1960-70s, many countries in their banks gradually began to introduce a system of card payments, and it rapidly acquired an international character.
Here are the advantages of cashless payments:
- Safety. A person does not need to carry bags of cash money to pay for a large purchase. In case of losing cash, the chances of returning it are minimal. And if you lose the plastic card, it can be blocked and reissued later, thus saving funds.
- Convenience. And again, a person does not need to carry cash banknotes and coins with them. They can pay with a card not only within their own country (of course, everything depends on the card’s type).
- Discipline. Usually, the issuing bank offers its client, in addition to the card, to use a mobile app with which you can track the movement of funds on the account. This, in turn, helps you shop more consciously and grow your savings.
Banks also offer their customers a lot of additional services as part of credit card processing in the form of cashback, discounts, bonuses, special offers, interest-free payments for goods and services anywhere in the world, etc. Against this background, cash is clearly losing.
Benefits of paper money
With cash, a person has immediate access to and control over the funds they earn without dealing with a third-party entity or waiting for the transaction to complete. In addition, despite the digitalization of many economies worldwide, there are still places where payment is possible only with physical cash money. It is also believed that having cash banknotes in hand, not a card, makes a person less prone to spontaneous purchases and impulsive spending. When shopping online, the feeling of spending money is sometimes lost, which cannot be said when using cash.
One of the significant advantages of cash is the ability to maintain the confidentiality of private life. In the case of non-cash electronic payment, it is easy to find out where and when a purchase is made, how often, what amounts are spent, etc. Yes, this minus can be offset by issuing anonymous cards, but such offers on the financial market are extremely limited. When using cash, you should not be afraid of personal data leakage and online scammers’ encroachments.
The advantage of cash is that you can pay with it anywhere since you do not need a terminal or ATM. In addition, when making payments in cash, you do not have to pay extra fees.
Will paper money become obsolete and completely replaced by electronic payments?
Due to its unique characteristics and independence from special infrastructure, cash is unlikely to disappear completely in the next decade. They will continue to play an essential economic role in the life of society for a long time to come. You can use physical cash money in almost any conditions:
- in the absence of electricity
- in the absence of the Internet
- during man-made and natural disasters
- anywhere in the world.
Cash will still be actively used in rural areas and countries with weak economies. Older and visually impaired people also are unlikely to refuse cash.
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To fully switch to cashless electronic payments, the country must have a stable Internet with a wide coverage area. In any corner of the country, even in the most remote, a person should be able to use a plastic card or other cashless payment tools. For a mass transition to non-cash payments, the country needs to have an appropriate infrastructure in the form of POS terminals and ATMs. Not all states will be able to provide such a level of service.
However, it is expected that in their daily lives, people will increasingly try to move away from physical cash money in the future and prefer electronic payment. Electronic payment systems will integrate payments into different systems, where a person will be able to pay for some services without even thinking that they need to complete a payment transaction.
Already today, in some European countries, there are shops where cash is not accepted. But such solutions have not yet acquired the status of mass. For merchants, cash will likely remain a fallback option in case of failures in the terminals’ operation.
However, progress cannot be stopped, and over the years, cash will be used less and less. But it is too early to talk about the complete disappearance of such a means of payment because physical banknotes and coins are an essential part of the financial system, national culture, and identity.
If you have any questions regarding opening accounts and companies abroad, please contact our experts in any convenient way.