In The Rush Toward A Cashless Society, The Poorest Are At Risk Of Further Exclusion

Indian Prime Minister Narendra Modi has a grand ambition to make his country into a cashless society. In 2014, he launched a scheme to provide bank accounts to the nearly 40 percent of the population with little or no access to financial services. In November 2016, he withdrew 500 and 1,000 rupee notes ($7.80 and $15.60), the country’s two most common banknotes, from circulation.

The aim was to clamp down on black-market money and get more people into the formal economy, but it had a negative effect on the poor, with micro and small-scale service businesses cutting 35 percent of staff in the first few months, and some families left unable to afford fruit and vegetables.

Cash is on the decline worldwide; non-cash transactions grew 11.2 percent globally in 2015. But for some, the Modi experiment is a sign that cashless societies will hurt the poor, and India is not alone in having poor, unbanked populations. An estimated 7 percent of American households don’t have access to bank accounts, according to the most recent survey from the Federal Deposit Insurance Corp. And a government study at the end of last year found that the U.S. homeless population had risen for the first time since 2010. Given rising inequality, what happens to those on the margins of the economy when cash is no longer king?

Proponents of a shift away from cash often point to Kenya or Sweden as proof that such a transition can happen without further disadvantaging the poor. In Sweden, which is on track to be the world’s first cashless society, a magazine called Situation Stockholm has equipped its homeless sellers with credit card readers. And M-Pesa, a mobile money service first rolled out in Kenya, has 30 million subscribers and has been credited with raising 2 percent of Kenyan households out of extreme poverty. 

But Mehrsa Baradaran, associate dean for strategic initiatives and J. Alton Hosch associate professor of law at the University of Georgia, says that absent these countries’ unique context, these examples would be difficult to follow in the U.S.

“Kenya had one national bank and one mobile company that had a monopoly,” she explains. “Everyone was on the same mobile network so they just rolled out M-Pesa on the mobiles and everyone immediately got on.” The U.S. has a dual banking system (state and federal) and more than 6,500 banks meaning rolling out mobile banking would require a lot more coordination, says Baradaran. “Kenya had a different population ― more poverty and less of a profit model-oriented banking system.”

As for Sweden, Baradaran says, “They just don’t have the level of poverty that we do. ... They have a lot of social services and they’ve transitioned off cash because they have a less-stratified society.”

Economist Kenneth Rogoff, a Harvard professor who formerly served as the chief economist for the International Monetary Fund, argues in his book The Curse of Cash for a gradual elimination of cash to get at the black market and to crack down on tax evasion.

Source: Huffingtonpost News