Half a decade ago, the International Monetary Fund (IMF) started predicting that merchants in Sweden would stop accepting cash by 2025. Now that we’re rounding the back end of 2023, that’s coming up fast.

But is that what we’re seeing here in Australia? Are we truly going cashless? What about overseas? And what does that mean for the future of currency?

Going Cashless – Is This The Future of Currency?

In 2022, Sweden, Denmark and Australia – among other countries – were predicted to go completely cashless by the end of the 2020s. But it appears that the impacts of the pandemic – lockdowns increasing online shopping across all industries for example – pushed that ahead. In fact, in 2021, only 19% of transactions in the United States were cash transactions.

The Reserve Bank of Australia (RBA) shows that this is even more accelerated in Australia. Since 2019, ‘in-person transactions made with cash’ have dropped by 50% to only 16% in 2022. And if you consider the ‘value’ of all payments the amount finalised in cash is even less – only 8% by value in 2022. The RBA states that this is simply an accelerated decline – again, due to the impact of COVID-19 – of something that has already been underway since 2007.

Drivers for Going Cashless in Australia

Australia, just like other countries globally, has many drivers pushing us towards a cashless society, which preceded the accelerating effect of the pandemic.

Digital payments for large transactions – particularly between financial institutions – has existed for a long time. And in the early 2000s, these started to trickle down to smaller transactions and the everyday consumer. And these are getting simpler every day.

Where five years ago we would mostly be using credit cards, today many consumers simple use their mobile phones. Even online transactions are easily managed through Apple Pay or G-Pay, replacing the slightly more complicated (though still cashless) PayPal. Small vendors, at markets or food stalls, for example, who would typically have required cash a decade ago, now have small tiles you can simply tap.

We are becoming a cashless society.

Concerns with a Cashless Society

The IMF has concerns with a cashless society. The role of a central bank is to manage money supply. In Australia this is the RBA. But the move to cashless has impacts on the RBA’s (and any central bank’s) ability to monitor and control that money supply. Particularly if we embrace a fully cashless society in the future.

If cash is the payments of the past, then digital currencies are the payments of the future. Will the RBA then issue only digital currencies? If digital currencies become the main form of currency, there is a risk that central banks won’t be able to really protect the public. In other words, the public sector will have a great control on the accessibility of cash and the state-guaranteed protections that come with state-issued currency will be diluted.

At the moment, when we use digital payment systems, we still understand that this is backed by the movement of cash. But if cash were no longer to be issued, what would that mean?

Central Bank Digital Currency

In Australia we already have digital currencies issued by the RBA. These are simply the digital monies held in bank accounts and other financial institutions that can be used to settle payment obligations between people.

However, the RBA is also actively researching a new form of digital currency called CBDC, or central bank digital currency. The RBA sees this new currency as complementing our existing cash and digital currencies, rather than replacing them.

CBDC would be a new form of digital money issued by the Reserve Bank that is designed for use by everybody – both retail users (i.e., regular consumers) and wholesale users (i.e., market participants). With the CBDC the RBA would still control its issuance. This would allow Australians to trust the currency and allow the RBA to continue to manage the flow of money within our country.

In March 2023, the RBA announced that it would be testing CBDC through a retail pilot program. They have chosen 14 CBDC ‘use cases’ for live testing over the next few months. Both big banks and fintech companies were chosen, including ANZ Bank.

Australia isn’t alone in exploring this new currency. More than 110 countries are currently doing the same, and research by the OMFIF Digital Monetary Institute shows that almost a quarter will launch their digital currency in the next year or two.

Speak to an Expert

While there are pros and cons to a cashless society the annual Global Payments Report predicts that Australia will be almost completely cashless by 2025. In fact, only 2% of the value of all transactions will be cash. However, if you’re already someone who taps your iPhone at the supermarket, you may not see any impacts on a day to day basis.

If you’re concerned about your financial situation, are interested in refinancing or obtaining other financing, get in touch! At Lending Loop our experts are on hand to answer all your questions – whether they’re about financing or cash!