Like Hart, the world is moving away from cash, and for some of the same reasons he abandoned it. Removing cash reduces theft and violent crimes. Cash is expensive to produce, maintain, transport, and secure, and it’s often the lifeblood for illicit transactions like government corruption, sex trafficking, and drug deals.
But some people without extra financial margins rely on cash, and it is unlikely to disappear completely (see sidebar on negative interest rates). A laborer earning only a few dollars a day might not have enough income to open a bank account. Those living on day-to-day expenses might not have the ability to wait for a check to clear, so they go to a payday lender or check cashing place to make their payments in time. And in some cultures, people don’t trust financial institutions—banks might have a history of being discriminatory or unreliable.
The ubiquitous fruit vendors on the street corners in New York City conduct only cash transactions, mainly because their transactions are so small (five bananas for one dollar!) that the hassle of electronic payment isn’t worth it. Small-business owners can’t always pay the swipe fees associated with cards or mobile payments.
But the trend away from cash is happening rapidly. In November 2016, India eliminated its large denominations of currency in an effort to move its economy away from cash. Just in the last few years Nigeria, Kenya, and China have begun to rely more and more on mobile electronic payments. Sweetgreen, a booming salad restaurant chain in the United States, recently decided it would no longer accept cash.
China now has 770 million users on 4G networks, according to government data. Mobile payments on apps like WeChat and Alipay are increasingly common there, and the strong mobile infrastructure enables those even in rural areas to make payments without cash.
‘The risk for poor families is where merchants adopt cashless policies, or the government mandates the limitation of the use of cash before the poor families have the ability to participate in the mobile economy.’ —Dave Wasik
Kenya–until recently a highly un-banked country–has similarly seen success with Vodafone’s M-Pesa system, where users can make payments using their mobile phones. M-Pesa transactions now add up to almost half of the country’s GDP, and it is expanding to other countries.
Christian community development experts think the move away from cash is a good trend overall. HOPE International, a Christian financial services group, began its savings and loan groups in Ukraine 20 years ago and recently began disbursing all of its Ukraine loans electronically. Dave Wasik, vice president of operations for HOPE, said it’s cost prohibitive to offer small cash loans (like $50) in rural areas—a loan officer can’t travel out and meet with clients. Mobile technology will allow them to reach places they haven’t before.
The key, development experts say, is how countries go about the move to digital financing. A top-down edict to eliminate cash, as happened in India, will create more problems than an organic move away from cash as electronic infrastructure improves for everyone. “The risk for poor families is … where merchants adopt cashless policies, or the government mandates the limitation of the use of cash before the poor families have the ability to participate in the mobile economy,” said Wasik.
HOPE uses curriculum from the Chalmers Center, a Christian community development group, for its savings and loan programs. Mark Bowers, the curriculum specialist at the Chalmers Center, understands what India is trying to do from “a mechanical perspective,” but he said “there’s a human side of it.”
“Everyone’s just going to get banked all the sudden in a month?” said Bowers, about India’s sudden move away from cash. “It’s unrealistic and really does punish people on the lower end of the spectrum.”
The Indian farming sector, which tends to rely on cash, felt the shift painfully. After the Indian government’s ban on larger denominations last fall, the head of a farmers’ federation, K.V. Illengeeran, reported dozens of suicides because farmers couldn’t withdraw money. One farmer, Kandukuri Vinoda, thought her cash savings in those denominations were now worthless and hung herself. Another, Madhukar Bahale, waited hours in line at a bank to withdraw money to pay his workers, but the bank had run out of cash by the time he got to the counter. That night he died of a stroke, which the son blamed on his father’s stress over the government’s policy. U.S. Awasthi, managing director of the Indian Farmers Fertilizer Cooperative, said farmers would benefit from the policy “in the long run.”
In Nigeria, cash used to be king. Bank transfers used to take several days, so people paid all their bills in cash, even if that meant walking around with plastic bags filled with it. The cash-based economy also helped hide extensive government corruption. In February, a raid of a building owned by a former government official in Kaduna, Nigeria, uncovered a safe filled with $9.8 million in cash. The official, Andrew Yakubu, told investigators the money was a gift from unnamed sources.
The move to electronic transactions was happening organically in Nigeria, as mobile infrastructure improved and people used their phones for purchases. But in 2012, the central bank hastened this trend by charging a percentage fee for large cash withdrawals in certain areas of the country, part of an effort to crack down on corruption.
Now there are other infrastructure improvements: Nigerian bank transfers don’t take more than 24 hours, and mobile payments can happen instantly with a good network connection. A customer asks the seller for his account number (the transaction requires trust) and then plugs in a code from her bank into her phone to transfer directly to the seller, and the seller immediately gets confirmation. The transaction has no fees unless the seller uses a different bank from the buyer, in which case a transaction costs about 16 cents.