India, for example, made headlines around the world last month when it announced that its 500 and 1,000 rupee notes (worth around £6 and £12 respectively) were no longer legal tender. The move, designed to clamp down on so called “black money”, caused chaos, with huge queues at banks as people tried to bank or exchange their high-value notes.
Meanwhile, South Korea recently announced its intention to do away with cash altogether, setting itself a target of getting rid of small change by 2020 as a starting point.
So why would an economy choose to get rid of cash?
Firstly, there are some rather obvious reasons: it’s costly to print or mint money (the Royal Mint doesn't disclose how much it spends on minting coins, but South Korea estimates its own spending at £32m per year). Of course, cash is also expensive to store and to transport, particularly given its inherent value.
There are some more nuanced reasons, particularly for doing away with high denomination notes: chiefly that they are often used for nefarious purposes. High-value US notes are frequently associated with crime such as drug trafficking, and India’s decision to get rid of its high denomination notes will make cash payments more difficult, clamping down on tax avoidance and bribery.
While these are of course noble causes, there is a strong argument against demonetisation, which is that it erodes privacy. In fact, while anonymity is one of cash’s perceived shortcomings, at the same time it’s also one of its greatest strengths.
Cashless payments – generally made through a credit or debit card – are easy for governments and companies to track. This is good if you trust them to act in your interest no matter what, but some people are uneasy about handing over this level of private information.
There’s also an argument that paying with cash means that people have a more acute awareness of how much they’re spending, and several behavioural studies have shown that people tend to spend more if they pay for things electronically instead of using cash. However, new technology that makes it very easy for people to track spending in real time might well mitigate this problem.
So, while it might sometimes seem as though the march towards a cash-free society is inexorable, there are actually some sensible counterarguments which could slow or derail the transition.
Of course, it’s possible that we might find a way to put privacy concerns to rest, or simply decide that loss of privacy is a price that we’re prepared to pay for the convenience of not using cash. But either way, there’s some way to go before we become a truly cashless society