Part one of an international series on the cost of cash around the world, including Egypt, India, and Mexico.
After more than 2,000 years as king, cash today faces competition. Private vendors have introduced a host of substitutes they claim are better than paper currency, and new technologies – from mobile payments to electronic payment services – threaten to make cash obsolete. Still, cash continues to play a major role in the United States economy.
The Institute for Business in the Global Context at studied the cost and benefits of cash in the United States. The study yields new insights on its use, the reasons to consider cash versus alternative payment systems, and the impact of cash use on different participants, consumers, merchants and society. Study highlights include:
- The cost of cash is meaningful. The cost of cash to the various stakeholders, consumers, businesses, and the government amounts to at least $200 billion in the United States.
- The cash economy exacerbates social inequities. Unbanked individuals are four times as likely to pay fees to access their money and pay $4 more per month in fees for cash access.
- The triggers for switching to non-cash alternatives are different for consumers and businesses. For consumers, the biggest source of costs is in the form of time spent accessing cash. For businesses, the biggest source of the cost is due to theft and loss during transporting cash.
- Unbanked households need more on-ramps to financial services. Unbanked Americans pay heavy fees charged for payday lending, buy-here-pay-here auto loans, and check cashing. Entry-level payment instruments could be priced at low flat rates and backed by paid-in funds rather than credit.
- Policies to shrink the cash economy can help grow government revenues. Recovering even a fraction of the foregone tax revenues could be a fiscal game-changer. Closing or reducing the tax gap of over $400 billion (of which 84% is due to under-reporting) should be a priority.