Fletcher in the News

Should We Ditch Cash for Good?: IBGC Cost of Cash Study Highlighted in Bloomberg

Cost of Cash, The Fletcher School, IGBC

In Stockholm, the homeless now accept credit cards, Bloomberg News reports. Sweden’s high-tech economy has made bills and coins almost obsolete, so equipping the destitute with card readers -- a world first, apparently -- was a natural evolution.

It’s a tidily Nordic expression of a global trend. This is the age of credit cards and debit cards, of PayPal, Square and Amazon Coins. In some places -- parts of Africa, for example, where people can use their mobile phones to buy everything from dinner to insurance -- the need for cash for legitimate purposes has all but disappeared. Worldwide, the number of mobile-payment users is expected to reach almost 250 million in 2013, up from about 200 million in 2012.

Governments the world over may be tempted to speed this transition to a cashless society. And they could do so pretty easily, first by accepting digital payments for taxes and public services, then by gradually winding down their mints and printing presses. But while they’re right to encourage people -- especially the poor -- to take advantage of digital payment methods, governments also should prepare for the risks involved, remembering that cash has some virtues that whatever replaces it should strive to match.

The disadvantages of cash won’t be missed -- and there are plenty of them. It’s vulnerable to theft. People lose it. It’s difficult to move around in large quantities or over distance. It’s ideal for anyone who wants to launder money or evade taxes, which is bad news for those who don’t.

All this means that cash costs money: A study published last month by [The Fletcher School at] Tufts University estimates that handling hard currency costs U.S. businesses $55 billion annually in theft, security expenses and additional labor. For consumers -- who pay nearly $8 billion each year in automated teller machine fees and spend an average of 28 minutes a month traveling to access money -- cash imposes costs of about $43 billion a year. Lost tax revenue from unreported cash transactions adds up to at least $100 billion annually.

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