Backlash Against War on Cash Reaches the Bank of Canada
A cashless society could have “adverse collective outcomes.”
In recent months, a slew of political and financial institutions have raised concerns about the march toward a cashless economy. They include:
- The ECB warned that a phase-out of cash could pose a serious risk to the financial system. Depending too heavily on electronic payment systems could expose financial systems to catastrophic failures in the event of power outages or cyber attacks. The European Commission has also backed off is war on cash.
- The People’s Bank of China announced that all businesses in China that are not e-commerce must resume accepting cash or risk being investigated, and cautioned businesses against hyping the “cashless” idea when promoting non-cash payments.
- In Sweden, one of the most cashless societies, the central bank and parliament have spoken out in support of cash.
- Cities too have spoken out, including Washington D.C., whose City Council introduced a bill that sought to ban restaurants and retailers from not accepting cash or charging a different price to customers depending on the method of payment they use.
Now, it’s the Bank of Canada’s turn to sound the alarm. In a paper — “Is a Cashless Society Problematic?” — it outlines a number of risks that could arise if the country went fully cashless.
The premise underpinning the analysis is that at some point in the future individuals and firms decide, of their own volition, to cease using cash altogether. In response, the central bank stops printing physical money because of the large fixed costs inherent in supplying bank notes.
In such a scenario, even though most individuals and firms freely choose to abandon cash, there could be “adverse collective outcomes,” the study warns.
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