The use of cash continues to contract. Enthusiasts are quick to point out that the use of cash will vanish is a similar fashion as movie and music rentals were displaced by streaming services or photos gave way to the digital revolution. When it comes to cash, the situation is a bit more complicated. A study conducted in 2013, 85% of global transactions involved cash. The rate has arguably come down since then, but cash remains the cornerstone of finance in many societies. Emerging markets are quicker to adapt to using less cash as they operate in a system that is evolving with a younger population at the core.
Use of Cash Remains Uneven
Countries that are leading the cashless revolution include Sweden, Switzerland, and Singapore. Emerging markets like Saudi Arabia, Malaysia, and Peru conduct over 95% of financial transactions in cash. Even developed nations like Japan, many EU members excluding France and the Netherlands, and the US continue to use cash as the primary payment tool. Cash remains very expensive, especially as compared to digital alternatives but its popularity is hardly impacted by costs.
Sweden has long led European countries in relying less on cash. Six Swedish banks pooled resources together and created the Swish app. Over half of all Swedes use Swish for digital payments, confirmation lasts just a few seconds, and the popularity is on the rise and remains free of charge for private users. A rather unlikely leader in cashless operations can be found in one of the poorest countries, Somaliland. Mobile operator Telesom launched the ZAAD mobile payment platform in 2009 and one decade later roughly 30% of the population is using it.
ECB Mulls CBDC
According to an ECB document, the central bank is ready and willing to develop a central bank digital currency (CBDC). The ECB will step in if the private sector fails to produce a digital remittance system that works cross-border and is cost-effective for the entire region. The document read “If industry efforts fall short of developing an innovative and efficient pan-European payment solution, the social need for it could potentially be met by issuing a central bank digital currency. A CBDC with the status of legal tender could guarantee that all users have, in principle, access to a cheap and easy means of payment.” The ECB has warned on relying on foreign actors to provide the required infrastructure.
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India and UK in Transition
In an attempt to weed out corruption and fraud, the Indian government voided the 500 and 1,000 Rupee banknotes. It issued fresh 500 and 2.000 Rupee banknotes, forcing consumers to go into a bank and exchange their voided banknotes for new ones. This stunt impacted over 85% of the cash in circulation in an economy where cash accounts for 90% of financial transactions. The economy faced disruptions but has recovered since then. The biggest winner was the mobile wallet operator Paytm.
The UK is also transitioning into less-cash society, but rural areas continue to lag. One of the biggest issues cited remains the lack of mobile bandwidth, coverage is poor and makes mobile payment solutions inaccessible to many rural consumers. The 5G network is supposed to address those concerns, but it remains years away before penetration and coverage are upgraded to cater to the entirety of the country. A growing number of businesses are moving into the cashless sector, and the trend is likely to accelerate.
Two of the most overlooked aspects of using less cash can be found in consumers with disabilities and households on a budget. Technology is outstanding, but not everyone can benefit from it. For disabled consumers, using cash is more user-friendly while budgets are easier maintained with cash than with an invisible balance in a card or chip. The trend towards less cash is clear and gaining momentum, but cash will remain part of society for decades to come.
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Sweden remains at the forefront of becoming a cashless society. Corruption and counterfeiting may not be top concerns for Sweden, but Swedish Krona is favored to experience a long-term positive impact due to the cost and efficiency improvements. The USDSEK has entered its third month of correcting from its peak, and a breakdown below its horizontal resistance area is expected to accelerate the sell-off. The CCI has moved out of extreme overbought territory with more downside anticipated. Open your PaxForex Trading Account today and join one of the fastest-growing communities in the forex market!
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