Jason Whalley explores the benefits and pitfalls of a cash-free society and what it could mean for the insurance industry.
Society as we know it has always required paper money as exchange for goods and services. But in recent years, electronic banking systems have advanced to the point where many organisations no longer have a direct need for cash.
Salaries can be paid directly to bank accounts. People use debit or credit cards to buy items, and with contactless cards and mobile pay apps, everyday transactions are quicker and more convenient without using paper money. These means of exchange have skyrocketed in recent years - and many firms are more than happy to encourage and facilitate this demand.
For many of us, our monetary value is a number that we see on a screen, rather than a large pile of notes hidden under a mattress.In the UK, though, the pound sterling value of cash in circulation is currently higher than ever before.
A proportion of the country relentlessly distrusts the UK's financial institutions, and for many, the familiarity of cash and its associated processes are enough of a barrier to prevent the switch to digital. This serves to put a dampener on the vision of a cashless society.
It is fair to say that a cash-free society is on the horizon, rather than being around the corner - but the benefits of phasing cash out of circulation are too clear to be ignored.
Any kind of transaction involving cash presents an opportunity, through the absence of a digital audit trail, for criminality. There exists a long list of criminal activities that are critically supported by the existence of cash, including bribery, blackmail, theft, fraud and money laundering. By removing all cash from circulation, thereby documenting all transactions, these crimes immediately become more difficult to commit.
Credit cards are insured, and it is much quicker to de-activate a card than it is to reclaim stolen cash. Mixing 'dirty money', obtained through illegal activities, with 'clean money', becomes harder when all of the 'clean money' has a documented source of origin.
With a cash-free society on the horizon, it is inevitable that alternative currencies will be constructed to support the illegitimate actions that cash can currently be used for. An anonymous, digital currency could theoretically be created by anyone; cryptocurrency, especially decentralised assets, may represent one such option. In its early years, bitcoin was used for the procurement of illegal goods through black market trading. Fortunately, seizing digital currency hauls should be easier for the authorities than locating cash obtained through illegal activities.
Furthermore, it would be wrong to blankly declare cryptocurrencies a tool for criminals to use in the exchange of illegal goods. One World Bank report stated, for example, that bitcoin was not set up to be a Ponzi scheme - at least, not purposely.
A cash-free society would need to be followed by enhanced protection to the digital 'holding' systems. With more money stored through computers, hackers regularly attempt to exploit vulnerabilities in digital systems. While a stolen purse may be found a few blocks down the road, police officers will struggle to enforce control if a hack originates from a foreign country.
As consumers increasingly manage without cash altogether, the demand for protection against these risks will also increase. The actuarial world already offers risk-management solutions through cyber liability insurance, and this sector of the insurance industry will grow as the demand for traditional cash-based protection falls and is replaced by the need to ensure cyber liability.
Jason Whalley is joint student editor
