In 1978, Massachusetts became the first and only state to ban cashless transactions in retail establishments. Then, 41 years later, New Jersey, Connecticut, and Rhode Island, followed its lead.
After that, the cashless bans multiplied. Including Philadelphia, San Francisco, Berkeley, and NYC (on Nov. 20), a growing list of U.S. cities are saying that plastic alone or just digitized payments are not okay. Cash has to be acceptable.
However, the pandemic is creating some questions.
The Cashless Debate
When the U.S. government got a delivery of Federal Reserve notes from Asia, it said circulation would be delayed for at least 7 to 10 days. They wanted to be sure no virus lurked on any surface. Similarly, referring to Covid-19, a Rhode Island college professor suggests that her state reverse its cashless ban. She cites the governor’s recommendation that all restaurants become cashless when they reopen. Perhaps knowing that a typical rectangle of “paper” money can be the home of 3,000 kinds of bacteria (though I’m not sure about the coronavirus), both believe no cash is a healthier alternative.
Also opposing the cashless bans, opponents say they stifle payment innovation. Others point out that cash adds to business minutiae. They have to count bills, deposit them, maintain safety precautions. Atlanta’s Mercedes Benz Stadium saved $350,000 after going cashless during March 2019. Meanwhile, Harvard economist Ken Rogoff adds that large bills contribute to global crime.
On the other side, the cashless bans diminish inequality. They support the fifth of all Americans who have no bank accounts. They help the people and small businesses with limited internet access. In addition, psychologists remind us that cash can be a restraint. When we are aware of the cash we remove from a wallet, we spend less.
Moving beyond the U.S., we can travel to Canada to see a more cashless country. Sweden also is high on the list. (Several years ago I told the wonderful story of an aspiring bank robber who was told he had selected a cash-free location. Sadly leaving with nothing, he asked a teller, “Where else can I go?”)
In the U.K. the share of cashless sellers jumped to almost 60 percent during the pandemic:
Our Bottom Line: Pandemic Money
So yes, the pandemic has encouraged us to replace cash with digital payments. But we should note that our digital device is not necessarily money; the transaction could be followed by a money transfer.
To be money, a payment needs these characteristics:
- A medium of exchange (It is widely accepted for payment.)
- A measure of value (People know what a certain denomination will buy.)
- A store of value (It will retain its value.)
Returning to where we began, is it okay to go cashless during (and after) a pandemic? I suggest yes, if only for the time and money savings that might support struggling retailers. However, as we inexorably move toward a cashless society, we need to knock down its exclusionary barriers.
My sources and more: This NY Times column on cashless transactions took me to countless possibilities. I went to a National Law Review article, to Payments Source, Pew, and Politico. I also looked at this paper from Harvard economist Ken Rogoff, the Dirty Money project and fisglobal. In addition, the Providence Journal told of the governor’s reversal. But if you just read one article, do go to Bloomberg CityLab.
Please note a key factual correction since publication about the Rhode Island governor’s policy reversal, supporting cashless businesses.