The Future of Cash in Digital Finance World

From barter to gold, silver, and copper, to dollar (rupee, euro, etc.) as the currency, and henceforth as we witness the formal (dynamic) particulars of money (as a currency—medium of exchange) today, technology has brought about a paradigm shift in money and payments. Since the shift from gold, silver, and copper as universally accepted forms of money to the modern day notes and coin currency was based on the “value,” the same attribution holds true for the shift from physical cash to digital cash happening today. However, it is those underserved poor in the world who pose a challenge in assimilating with the newer forms of digital financial services. Also, it is these fragile people only who probably would cause the return of the age-old barter system (backed by the “value” paradigm) running simultaneously with the cashless forms if the advent of cashless society occurs on a massive scale globally—especially in the developing economies.

That is why, in order to deploy a modern financial system that is also fairer, designing these systems democratically and sustainably is necessary (for e.g., providing bank accounts to the underserved who have so far been marginalised from the formal financial system under the auspices of financial inclusion drives is a fine beginning to democratise the system). This financial inclusivity of the poor people is necessary so as to prevent marginalising this vulnerable sect of the society from accessing the formal financial system. Today, multiple methods exist to pay, e.g., contactless cards, bank transfers, direct deposit, mobile and electronic payment methods, and digital currencies. Resorting to electronic payments leads to increased dependence on private financial institutions to make use of the money we have ourselves earned.

In the present times, where notes and coins are developed under the supervision of the Reserve Bank of India (RBI), the actual money in the account is a mere statistic displayed on a computer screen, while also being the (legal) property of your bank. While banks have long amassed the cumbersome impression of being tedious lenders, they have also often been rescued by the taxpayers’ monies (when declaring massive losses or bankruptcy due to economic collapses, etc.). So, going forward, the question arises, as to what is the future of cash in the increasingly digital financial world? Given the rising digitalisation of the financial world, and with the banks also following the trend by inking partnerships with digital financial services offering FinTech startups, is the time near for being able to store money, send and receive payments without even having a bank account? Would this advent of digital money completely extinguish (physical) cash money?

While the partial shifting of the financial affairs from traditional banks to the new (private) innovative financial services companies offering, for e.g., current accounts, is a welcome move in terms of formalising and democratising the economic power, it also minimises the possibility of being left to resort to government rescue packages (formed with public tax money) for saving failing banks. Where physical cash has been tough to trace while also being behind many crime financings: bribery and corruption, tax evasion, and counterfeiting; digital payments don’t allow tax evasion and curtail black market transactions; digital cash would revolve within the secured confines of technologies like retina scanning, face and voice recognition to let owners safeguard their digital cash. The future of cash is surely headed towards systems that have emerged of late allowing money transfer simply via email or text.

However, it is also vital to consider here that the cash method of a financial transaction also carries with it certain irreplaceable benefits. These benefits include the following: i. Cash is the mainstream exchange medium between poor people. ii. Cash prevents identity theft. iii. Privacy. iv. The tradition of cash is deeply rooted in certain cultures around the world as it is used in large volumes on special celebratory occasions (e.g. Diwali). Still, given the push of digital finance, e-governance, and discharge of various civic services under public information technology frameworks by the governments across the world, there is a possibility in the near future that governments could replace cash altogether with the passing of legislations or issuance of decrees. Could a “less-cash society,” as promoted by economist Kenneth Rogoff, be the optimal balancing mechanism to thwart the cons of physical cash and digital cash, ensure economic empowerment whilst also furthering financial inclusion goals, as against a totally cashless society?