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The Resilience Of Cash In A Digital World

Cashless proponents have sounded the death bell for cash for at least two decades, but their predictions have been premature. To be sure, digital forms of payment have received a boost in recent years but have not succeeded in completely displacing coins and paper money. Its unlikely cash will be replaced anytime soon – if ever.

The need for legal tender remains high in a variety of settings, including small retail shops, convenience stores and environments where tipping is common. Cash has proven resilient despite threats over the years from a variety of alternatives, including credit and debit cards, online payment systems and digital wallets.

High volumes of coins and bills remain in circulation around the world. In the United States, cash circulation is higher than ever. The U.S. is hardly alone, according to banking services organization BIS, which says most countries have seen higher cash in circulation since 2000. BIS, which works with 60 central banks, says “demand for cash rose in most advanced economies after the 2008 global financial crisis.”

It still means something to have cash in your pocket. In fact, most small retailers prefer it that way. “Cash is king. When you pay with cash, businesses know that the transaction is complete, and there’s minimal risk of future complications,” a recent article in The Balance explained.

The Current State of Cash

With all the digital currencies and forms of payment now available, it’s understandable that the notion of a cashless society has gained traction since the 1990s, when the computerization of manual processes got into full swing. The popularity of smartphones in recent years helped fuel an explosion of digital wallets, giving consumers alternatives to cash and payment cards when making purchases. An increasing number of retailers have adopted these digital forms of payment out of convenience.

Still, cash remains the most frequent form of payment in the U.S. as of 2018, accounting for 30% of all transactions and 55% of purchases under $10, according to the Federal Reserve’s Diary of Consumer Payment Choice (DCPC). “Because the majority of reported transactions were below $25 in value, cash was the most used instrument overall,” the DCPC said. Paying with bills and coins remains commonplace at convenience stores, gas stations, fast food restaurants, outdoor markets, laundromats, food trucks and vending machines. Cash accounts for almost half (41%) of fast food purchases and a third of transactions (33%) at convenience stores, according to IHL.

Even as online commerce continues to expand, 77 percent of all payments occur at physical locations, according to the Fed. “For these in-person payments, cash accounted for 39 percent of the volume.” Enough buyers have shown a preference for cash that it is now possible to also pay for certain online purchases in person with cash through the Paysafecash service. Amazon Cash also just launched a service were customers can visit a store kiosk, put in cash and buy products on Amazon without using a credit or debit card.

No wonder, then, that U.S. cash in circulation has increased in the last 17 consecutive years. At the end of 2017, an estimated 41.6 billion bills worth $1.6 trillion were circulating. By 2021 it’s projected that $22.7 trillion or 11.2% in cash will make up the U.S. GDP. In Europe, despite a strong movement toward cashless systems in Nordic countries, cash also has demonstrated staying power. At the end of 2017, the total value of euros in circulation was €1,171 billion, with an annual growth rate of 4%, according to the European Central Bank.

What Explains Cash’s Resilience?

Why is cash so resilient despite its growing competition? Cash owes some of its success to the shortcomings of the alternatives, which can be cumbersome and leave a trail. For one thing, you can’t be anonymous when paying with a credit card or a digital wallet, which isn’t a problem with cash.

Currently, Sweden is the country closest to a cashless system but even though most Swedes are embracing the cashless concept, problems have surfaced. Certain groups, including the elderly, immigrants and the unbanked, have limited or no access to banking, which puts them in a bind if they can’t use cash.

Seven Shortcomings of Cash Alternatives

If alternatives to cash were demonstrably better in all respects, by now most countries would be following in Sweden’s footsteps toward a cashless system.  As already noted, all alternatives have shortcomings:

1. Inconvenience

One of the main arguments for a cashless system is convenience. Take that away, and the question becomes why have it. This is why eWallets haven’t gained as much traction as expected. They force users to update apps frequently and are useless when smartphones lose their charges. Only 16% percent of users have used a mobile wallet, according to a recent study.

2. Discrimination

Not everyone has access to cash alternatives and cash does not discriminate. Credit and debit cards aren’t available to the unbanked and under-banked – the folks who can’t get bank accounts for one reason or another. In the U.S., 27% of people would have trouble making purchases without cash. Lawmakers in New Jersey recently passed a bill to make it illegal to refuse to accept cash. They are joined by their eastern neighbors, Massachusetts. The District of Columbia, New York and Philadelphia are also in the midst of passing bills to ban cashless stores.

3. Budgetary Challenges

Once your cash is gone, you can’t spend anymore. As such, it’s easier to budget with cash than with credit cards or other forms of payment. Financial guru author and speaker David Ramsey advises to keep budgeted cash amounts in envelopes as a means to monitor spending, forcing discipline and accountability. Keeping track of spending with plastic can be especially challenging because of high credit limits. As such, consumers are more likely to get into debt with credit cards.

4. Lack of Anonymity

Even when electronic payment systems such as Zelle and Paypal offer convenience, they leave a trail, which is inconvenient for buyers who prefer to remain anonymous. Cash is the only truly anonymous form of payment. Everything else, including credit and debit cards and mobile wallets, leave a trail. Cryptocurrencies such as bitcoin offer a level of anonymity, but they have limited availability.

5. Grid Dependence

All cash alternatives are dependent on access to a device or plastic card, requiring the electrical grid to operate. While it’s possible to process card payments manually, that is increasingly rare. Besides power failures, other types of outages such as banking network disruptions can render electronic banking unusable. A Visa outage in 2018 caused disruptions across Europe.

6. Merchant Expense

There is a cost for merchants associated with all electronic forms of payment. Credit cards incur fees for merchants, one of the reasons 55% of small businesses don’t take plastic. Charges from credit card fees range from 2-4% and can be passed on from a business to consumer to cut down on operational costs. The National Retail Federation reports that businesses collectively spend $80 to 90 million on credit card translations a year. Payment processing and digital wallet systems also require hardware and software investments, which not all merchants can afford. There’s also a learning curve that translates to time and money for training.

7. Security Risks

Security is always a major concern with digital systems. Hacking and cybercrime are a common occurrence, and sometimes compromise the payment card information of users. Cash dependency can also be linked to American’s distrust in both digital/online technology and the government. Digital theft and online privacy related to new payment methods erode trust and bode well for cash use. Another less likely but still real concern is a potential attack on the power grid or banking system by a foreign rival or terrorist group. At the individual level, device theft or loss also creates security issues.

Benefits of Cash

The reason cash has proven resilient is because of its benefits – and there are plenty. While consumers don’t tend to use cash for large purchases, such as cars and furniture, it remains king in many other areas. Cash is the most convenient, inclusive and agnostic form of payment for small purchases, which is why it is used in most transactions under $10. Some retailers and eateries accept only cash to avoid payment card fees, which allows them to offer better prices to customers. As such, cash helps keep transaction costs down. That’s why some gas stations charge less for fuel when paid in cash.

Buyers who use cash don’t have to divulge any personal information, which isn’t possible with other forms of payment. Mobile wallets and payment cards leave a trace, making it impossible for a buyer to remain anonymous.

When it comes to budgeting your expenses, cash is the most effective way to keep track of how much is spent and how much remains inside the wallets. Legal tender is also good to have in an emergency; as winter storms, hurricanes and other weather events have intensified in recent years, power outages have become more common in certain areas. While the power is out, it is virtually impossible to transact business without cash. 

Negotiating a transaction that involves cash is typically easier than when payment cards or some type of financing is involved. For instance, a car dealer is more likely to offer a discount for a cash purchase. Even if the transaction involves a bank check, it is essentially cash – and cash in hand is usually more attractive than receiving payment in installments.

Cash is also convenient for travel. Cab drivers, pop-up street vendors and some parking meters often take only cash. Workers who accept tips always prefer to get them in cash. Putting tips on credit cards could take a week before servers get them, and some employers deduct card fees from the tips. Lastly, when it comes to gifts, recipients generally prefer cash over a gift card for a wedding, graduation or birthday.

To summarize, cash benefits include

  • Convenience for small purchases and tipping
  • Lower transaction costs
  • Negotiating power
  • Buyer anonymity
  • Budgeting and debt avoidance
  • Preparing for emergencies


While electronic payment forms and digital wallets have made gains, cash isn’t going away. The simple reason is too many people and businesses still depend on cash. For instance, the nascent cannabis industry runs largely on cash as a result of U.S. federal policies that restrict its access to banking.

There are too many “what ifs” associated with cashless models, including dependence on the power grid and computer networks, security risks and the effects on the unbanked and under-banked.  As long as some retailers continue to prefer to accept cash to avoid credit fees, cash transactions will continue. Cash in circulation has reached and all time high, and if nothing else, that shows cash remains resilient and will be around a long time