Many experts predict that the world is moving towards becoming a cashless society. Cash is already on the decline in many countries as digital payments gain popularity. But how soon could paper money actually disappear completely? There are a few key factors that will determine the timeline.
The growth of digital payments
Digital payments like credit cards, e-wallets, and mobile payments are on the rise globally. According to one estimate, digital payments grew by over 10% worldwide from 2020 to 2021.
| Year | Digital Payment Transaction Value |
|---|---|
| 2020 | $4.9 trillion |
| 2021 | $5.4 trillion |
Many countries are seeing rapid adoption. For example, in China the share of digital payments grew from less than 20% in 2010 to over 80% by 2020. This transition was enabled by the popularity of apps like Alipay and WeChat Pay.
The COVID-19 pandemic further accelerated the use of contactless payments globally. As more people become accustomed to cashless payments in their daily lives, experts predict digital transactions will continue rising worldwide.
Government policies
Governments play a key role in facilitating the transition to a cashless society. Many countries are now implementing policies to directly reduce cash usage.
For example, Sweden is aiming to become one of the world’s first cashless societies. The government has set high targets for reducing cash transactions. Stores are legally allowed to refuse cash payments. The share of cash payments in retail settings dropped from around 40% to only 13% from 2010 to 2020.
India and China have also implemented policies to increase digital payments and reduce cash reliance, including digital payment incentives and expanding digital infrastructure.
If more governments actively push for cashless payments through policies, regulations, and digital infrastructure, global cashless adoption will accelerate.
New payment technologies
Emerging technologies are making digital payments even faster, easier, and more universal.
For example, contactless card payments are becoming mainstream worldwide. By just tapping a card or phone, transactions under a certain amount can be made instantly.
Cryptocurrencies like Bitcoin could also play a role, especially for large or international payments. Although not yet widely used for day-to-day purchases, cryptocurrency adoption is growing fast.
And entirely new payment methods like biometric authentication or QR code transactions are gaining ground in some countries. As these technologies improve, they will likely help phase out cash.
Security and reliability of digital payments
For a cashless society to take hold, people need confidence in the security and reliability of digital payment systems. Payment systems and infrastructure must be robust enough to avoid disruptions that could cause people to revert to cash.
Recent hacking attacks and system outages have highlighted vulnerabilities that could undermine this confidence. Addressing cybersecurity threats and ensuring stability as digital payments scale will be critical.
If people have doubts about the dependability of digital payments, the allure of the anonymity and tangibility of cash could slow the transition. But with progress in safeguards against digital threats, these concerns may be overcome.
Accessibility for the unbanked
Another important factor is increasing access to digital finance in developing countries where many people remain “unbanked.” An estimated 1.7 billion adults globally lack access to banking accounts or mobile money.
Expanding financial inclusion will be key to ensuring vulnerable groups aren’t left behind by a shift to digital payments. Options like mobile banking and prepaid cards can help transition more people into the digital economy. But governments and financial institutions will need to invest in robust solutions for the unbanked.
How Long Will the Transition Take?
Experts estimate the world’s transition to becoming cashless will likely happen gradually over the next 10-20 years rather than all at once. Here is an overview of what the timeline could look like:
By 2025:
– Cash usage continues declining as digital payments become mainstream across advanced economies.
– Developing countries expand access to digital finance.
– Most new payment technologies like contactless and mobile payments are widely adopted in urban areas worldwide.
By 2030:
– Many developed countries achieve major reductions in cash usage through policies and infrastructure supporting digital payments.
– Cryptocurrencies gain ground for international remittances and large transactions.
– Rural areas accelerate adoption of mobile money and cards as infrastructure improves.
By 2040:
– Only a handful of countries remain heavily reliant on cash, mostly due to lagging infrastructure.
– Biometrics, QR codes, or other new technologies replace cards for most in-person small transactions worldwide.
– Regulatory frameworks and cybersecurity safeguards are enacted to secure the cashless economy.
By 2050:
– Cash is phased out in most advanced and many developing economies.
– Universal digital payment infrastructure allows the unbanked to participate in digital finance.
– Cash persists only in informal economies or niche transactions. The world reaches near cashless status.
Challenges to Overcome
Achieving a cashless world in the next few decades is possible but will require overcoming some major hurdles:
Ensuring accessibility:
Transition policies must ensure disadvantaged groups can participate equitably. Solutions for remote or poor populations will be key.
Guaranteeing reliability:
Outages, hacking, or glitches in payment systems could erode confidence. Robust infrastructure and cybersecurity is essential.
Providing privacy:
Digital payments generate data, raising privacy concerns. Anonymous payment options could help.
Promoting competition:
Cash provides a public option immune from private influence. Dominance of fintech platforms could reduce competition. Regulations may be needed to maintain choices.
Adapting culturally:
In some cultures cash usage is deeply ingrained. Behavioral change and education will help populations adapt.
Conclusion
While cash will likely persist in some capacity over the next few decades, its usage could rapidly decline in coming years. Led by tech-savvy populations in Asia and Scandinavia, more of the world will shift toward relying predominantly on digital payments for transactions.
For developing economies, the path to becoming cashless will take more time. But with progress in digital finance options and supportive government policies, developing nations will also gradually transition.
A cashless future seems inevitable as payments innovation accelerates. But thoughtful policies and safeguards will be essential to ensure this shift benefits the whole global society, not just the privileged few.