Why Trust is an Issue in Cashless Economies

It often feels like we are reaching a turning point regarding the functionality of modern economic systems. The COVID-19 pandemic has accelerated the cashless debate, with governments and central banks across the globe debating the merits of cashless societies during crises and the advantages of cashless systems to combat among other things, corruption. Advocates highlight trust as a key component of a functioning digital economy. But this very notion of trust, or lack thereof, in regard to digital financial transactions is why many have been extremely reluctant to support the move away from solid cash.

This is in part due to the raging polemic regarding the perceived loss of our civil liberties in the age of the internet, which in many ways shaped the cashless debate, with individuals across many different societies maintaining a complete lack of trust in both digital payments themselves and the financial institutions that run the system.

Sceptics often fear third parties gaining access to transaction histories, exasperated in some countries by a more general lack of trust in digital systems due to little access to digital infrastructure, and therefore little to no experience in internet use.

In recent years, there has been a marked proliferation of new digital payment methods, with mobile banking apps, money transfer apps and cryptocurrencies added to traditional  digital instruments (credit and debit cards). These instruments are ostensibly designed to facilitate daily life and combat illicit practices, so why has trust remained such a burning issue in the cashless economy debate?

Security and Privacy: The Biggest Concern

Proponents of cashless economies often extol the virtues of digital systems as secure platforms for financial transactions that minimize risk. Modern technologies, they argue, can protect our assets from theft, bribery, and generally reduce the risk of illicit activities. However, no security solution is infallible and there is always the risk that data centers can collapse, risking the personal data of millions of individuals.

Moreover, concerns about security and privacy, invulnerability to hacking and data breaches and the use of personal data have all encouraged skepticism in cashless systems. People are acutely aware of the fact that all cashless transactions leave a digital trail, one that includes a person’s identity, banking information, as well as the time and place of the purchase, whether online or in-store.

“It is not hard to think of examples where the information about the purchase of a good makes the individual vulnerable: a purchase indicating that the individual has high wealth, or a purchase that may be embarrassing, even if perfectly legal,” wrote Charles Kahn, a research fellow at the Federal Reserve Bank of St. Louis.

More globally, such concerns are exasperated by the fact that many consumers simply to not trust banks, digital applications or the new technological infrastructure required to make a cashless economy a success. Indeed, biometrics could help to reassure consumers of the secure nature of their transactions, but these technologies pose in turn compelling questions on our civil liberties and right to anonymity.

Infrastructure, Access and the Digital Divide

The lack of trust goes further than mere concerns about digital security. In some countries, where internet access is limited and digital infrastructure remains largely underdeveloped, the very idea of allowing someone else access to your bank account is unthinkable, and the perceived security threats can be confounded by a lack of understanding of how the system works.

In India, for example, a country that has made no secret of its desire for a digital economy (see India’s 2016 demonetization move), the so-called digital divide is widening, with around half of its population still lacking basic internet access, and only 20% of the population knowing how to use digital services. The issue was aggravated during the COVID-19 pandemic, as schools closed and up to 80% of students unable to access online learning.

How can one expect to build trust in a digital system that excludes over half of the population? The figures show that trust in a hard cash in India remains solid, with over $26 trillion in public hands in 2020, around 15% of GDP, a record high.

Cash: The Staple of a Trustworthy Economy

For many people, hard cash remains the most reliable and most trustworthy type of currency. How can you put your trust in a currency that you cannot touch, and that you cannot simply keep safe at home? In the Philippines, for example, this fear of money that cannot be physically held is “hampering growth in cashless payments in the country,” a financial technology provider said.

Moreover, this skepticism of digital currency and trust in physical cash has transferred into the world of cryptocurrencies. In his white paper published in 2008, the anonymous Satoshi Nakamoto declared “We have proposed a system for electronic transactions without relying on trust.” Indeed, the blockchain system eliminates trustworthy (or untrustworthy) intermediaries, but it does not automatically create trust in the currencies themselves. In any case, the crypto-craze remains unaccessible to millions who live in countries with underdeveloped digital infrastructure.

It is clear that the lack of trust in the payment system and necessary digital infrastructures remain an obstacle to the proliferation of cashless societies across the globe. Consumers are, more than ever, concerned about security risks. For them, hard cash is generally a safer bet.

In reality, there are several arguments as to why protecting cash in our economies would be the right move: budgeting, financial inclusion, avoiding an over-reliance on infallible digital systems, protecting privacy, financial literacy etc. Trust is perhaps the most important. Trust in how your money is being saved, trust in the fact that your transactions are not being recorded in an endless digital data trail, trust in the system itself.

Max Otte, an economist based in Cologne who leads Save Our Cash, a national campaign that opposes measures to restrict the use of physical currency in Germany, says that “Cash, to me, is an important public good by which you measure the transparency and legal order of a society, and also the respect for the individual and the private sphere.” In other words, cash engenders trust in a system, for both individuals and institutions.


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