A cashless economy won’t help us cope with the coronavirus crisis

The public is already jittery as a result of the coronavirus pandemic, meaning that the issue of fake and misleading information about Covid-19 presents a problem as urgently in need of containment as the virus itself. Facebook, which seems to be perpetually making headlines for helping to spread disinformation, is once again in the crosshairs for failing to crack down on corona-related fake news.

It’s not just social media disseminating misleading information about the pandemic, either. Indeed, shoddy journalistic practices are equally to blame. For example, in early March, when The Telegraph and Daily Mail falsely reported that the WHO had advised people not to use banknotes as they could propagate the virus, the news was rapidly picked up by other outlets, thereby creating the impression that paper money presents an extraordinary health risk.

The transformative power of fear

The WHO quickly denied it had issued such a warning, while many other health experts have made it clear that banknotes pose no particular risk. Despite the lack of proof that paper money could be a vector for the virus, businesses around the world have started refusing to accept cash. As a consequence, calls to move away from cash as a means of payment are becoming louder.

Indeed, several EU officials and governing bodies have been particularly vocal advocates of a shift to a cashless society. The vice president of the European Commission for Banking and Financial Services, Valdis Dombrovskis, as well as the European Banking Authority, have been pushing for more cashless initiatives. Individual European governments have also advocated for their citizens to avoid banknotes in these trying times, despite acknowledging that “cash money is not infected”.

As such, unfounded concerns over whether banknotes can transmit the novel coronavirus are playing into the hands of those who consider the cashless economy an evolutionary step towards greater equality and a tool for fighting financial crime. However, a closer look at the consequences of this fundamental shift reveals several serious problems that will be hard to overcome, not to mention that a cashless society would pose vastly different issues in developed and developing countries.

Europe: not all that shines is gold

An obvious requirement for cashless payments is access to the necessary tools, such as computers, mobiles and Internet connection – but this is where the problems already begin. A recent European Parliament briefing on e-commerce and the prospect of a cashless society highlights the fact that a clear “digital divide” exists in Europe in terms of something as simple as online purchases. European online shoppers tend “to be under 65, well educated and be in employment or studying,” while “groups with less purchasing power, such as the retired and unemployed, shop less online.”

As a result of this digital divide, a sizeable chunk of the population would suddenly be cut off from the economy if it went cashless. In short, these people – predominantly the elderly – will be left in the dust if cashless becomes the norm, which should come as no surprise considering that 80 percent of European point of sale payments are done with cash.

Furthermore, the argument that cashless payments might help battle financial crime should come under closer scrutiny. Rising digitalization of the banking sector and the enhanced ability of companies and states to track and record anyone’s transactions has already sparked fiery debates over privacy. After all, following financial actions allows for individual profiling which could lead to automated restrictions on how people spend their money, resulting in a system of permanent surveillance.

At the same time, concerns abound that the rich, who are most likely to engage in tax-evasion and money-laundering the first place, may be able, as one cybersecurity expert warns, “to buy themselves privacy, while the average person with a traditional bank account receives no anonymity.”

Africa: widening gaps

Naturally, Europe is not the only region in the world considering the merits or disadvantages of a cashless society – several countries in Africa are urging the use of digital payment methods during the current public health crisis as well. Kenya, for example, has pushed for this economic model for a while, following the same argumentative line as Western politicians. However, if a cashless society is already fraught with numerous pitfalls in developed countries, then they present itself in developing countries at an even larger scale.

While going cashless in developed countries will lead to a generational divide, Africa will see widening urban-rural schism. The reason for this is the vastly superior development of the necessary technological infrastructure in the cities, which goes hand in hand with the ability to embrace cashless technology. The costs associated with increasing reliable access to the internet in rural areas is still prohibitively expensive, so this divide is unlikely to be overcome anytime soon.

While the use of cash apps across the continent is rising, it is important to remember that a higher percentage of African countries’ economies relies on informal activity undertaken by people without access to a bank account. As such, even in Kenya – a pioneer of digital transaction initiatives – nine out of ten payments are done in cash. Judging from these huge disparities in development even within countries, it is clear that going cashless will cut off huge populations from economic participation, even more so than in Europe.

What this means for policy-makers in Europe and elsewhere is that abandoning cash is no trivial undertaking, and in fact has many large-scale ramifications. In light of this, using the corona crisis to push physical money out of the economy is nothing short of reckless.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes