What Would Happen in a World Without Paper Money?
According to a recent Pew Research Center survey, released late in 2022, more and more Americans are ditching paper money. The results of the survey found that 41% of Americans don’t make any of their purchases in cash in a typical week- up from 24% in 2015.
Over the last ten years, digital apps like Venmo and Apple Pay, as well as digital assets like cryptocurrency, have gained steam, and become an integral part of our daily lives. It seems that as we rely more heavily on electronic or digital forms of payment, paper money may be moving towards obsolescence. However, experts believe that cash will always be around.
Bill Maurer, an anthropology professor at the University of California Irvine, believes that “it would be terrible” if paper money became obsolete. He argues that a world without cash would cause issues around security, privacy, and accessibility.
For example, around 4.5% of US households, or about 5.9 million people, were unbanked in 2021 according to data from the Federal Deposit Insurance Corp. This essentially means that those people do not have a checking or savings account with a bank or credit union. Those that are unbanked are therefore essentially shut out of the increasingly digital economy. Maurer notes that we live in a country with high levels of inequality. He notes that “if paper money goes away, those people are stuck with no way to pay.”
He notes that this issue was thrown into relief at the beginning of the pandemic when the government sent out relief money. Those people who were unbanked received debit cards, which can come with fees if you make more than one withdrawal, or paper checks, which incur a cost if you use a check-cashing service to obtain the money.
He adds that even the world’s most cashless societies, for example, Sweden and the Netherlands, have recommended that people retain paper money in case of emergencies. For example, weather-related incidents, such as hurricanes, can cause power outages that mean that people cannot use ATMs or make electronic transactions.
He further adds that paper money isn’t subject to the potential cybersecurity risks or privacy violations that are associated with digital banking. “When I hand you a $20 bill, there is no data captured by anybody from that transaction…it’s a relatively anonymous private thing, whereas all digital forms of payment generate data trails’”. Maurer posits that in a worst-case scenario, governments could potentially use digital trails to surveil a population and even prevent them from using digital or mobile services if they do not approve of their financial activity. Or, a mobile platform may target people with financial products that they don’t need.
There has been a rise in interest in digital currencies over the last few years. One currently debated is the possibility of a central bank digital currency issued by the Federal Reserve. Another is privately issued ‘stable coins’. These are digital currencies, or cryptocurrencies, that are tied to a stable asset such as the US dollar.
Christina Skinner, an assistant professor of legal studies and business ethics at the Wharton School, explains that there are several goals for a government-issued digital currency. These include modernizing our payments system, increasing inclusivity, enhancing financial stability, and preserving the dollar’s status as the world’s reserve currency. She further notes that moving towards central bank digital currency (CBDC) would move monetary power from the private sector to the government.
However, Skinner thinks that there are flaws in all of these arguments. For example, she notes that much of the money that we use today is already electronic, through demand deposits. She also suggests that a big reason that people don’t use banks already is because they don’t trust them. She suggests that if you are already skeptical of the financial system then a CBDC may not change that outlook. This view is backed up by the FDIC’s 201 survey on the unbanked which found that lack of trust in banks was the second biggest reason that people did not have an account.
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