step towards a cashless economy? What would be the advantages and disadvantages of a cash-free society? Is the current financial technology up to the task of safely processing all those extra transactions? How would such a move affect developing economies where large swathes of the population do not have a bank account? Why go cashless? The reasoning for the proposal, according to the Danish government, is that cash purchases are both an administrative and a financial strain on retailers, such as the cost of hiring a security service to send cash to the bank. “The Danish government are backing this because it is a growing market.
Some estimates put US e-commerce transactions at between $2 trillion and $3 trillion, which is a huge part of GDP. So, of course, governments want a part of these revenues,” says Carroll. “In Denmark, they can spend more on things like education and health because of the government getting a contribution from these transactions.” In addition, a recent study from McKinsey explains “electronic payments make banking systems more productive and lessen the need for an informal or shadow economy, which isn’t taxed nor monitored by the government”. Dealing a huge blow to the “black economy” and making tax evasion all but impossible are two obvious attractions for any govern-
ment. However, there could be other bonuses for the authorities. This is also part of a programme of reforms aimed at boosting growth in the Danish economy, as there is evidence that high cash usage in an economy acts as a drag. And, if taken further, it would give governments futuristic new tools to fight the cycle of boom and bust. This is because the more money is held in bank accounts, easier it is for authorities to encourage us to spend more when the economy slows though negative interest rates. Or, spend less when it is overheating by imposing taxes on transactions. Such an approach would be a far more effective way to damp an overheated economy than today’s blunt tool of a rise in the central bank’s official interest rate. Other advantages of a cashless society include the fact that forgery is impossible, as are cash robberies. Can the technology cope? One of the main fears that consumers and businesses
alike have of a cashless society is electronic fraud. In Sweden, for instance, where four out of five purchases are made electronically, cases of card fraud have doubled in the past 10 years. To alleviate possible fraud, the national bank, Danske Bank, has linked individuals’ MobilePay accounts to their national insurance numbers. Almost a third of the Danish population already uses a Danske Bank app called MobilePay, which according to WraaHansen has one-sixth of the fraud of credit cards. He says: “The technology is secure and cash is not exactly secure. If you are a business that handles cash, you always have the risk of theft. The technology is there and it is safer than handling cash. Handling cash is very expensive. You have to take it back and forth. You can make many rational arguments why cash shouldn’t be around anymore, but it will take a while.” Wraa-Hansen adds: “Whenever you enrol your card into a net, your information is secure. Then it is about having very high standards for security online or mobile or on tablet. Whenever there is something new around, people have questions about security and they have to get used to it.” However, others question the efficacy of legacy systems in the banking sector and their ability to cope safely with an increased volume of transactions: Robert David Steele, a strategic IT analyst, says, “Denmark and Sweden
Jul - Sep 2015 International Finance Magazine