SOUTH BEND, Ind. -- Tap-to-pay, Venmo, Splitwise - all relatively newer tools you’ve probably used or heard of that move money without ever seeing any physical cash! Plus, some establishments are fully cashless.
A podcast episode that came out a couple years ago from the Federal Reserve Bank of Boston answers the question: Is cash cancelled?
Basically, they said no.
They said lots of people still have cash but use it more as a backup currency. By the end of 2020, cash use had dropped to 19 percent of all payments, though the demand for it was still there.
That same podcast talks about the need for cash in certain situations - like if the power goes out - and you can’t swipe or tap anymore.
It also points out that some households that are "unbanked" or "under-banked" use cash as the primary method of payment for people making under 25k.
Economics and business professor Andreas Hauskrecht, PhD, from IU’s Kelley School of Business, says the use of cash has dramatically decreased in many places around the world.
He says more and more cash transactions are being replaced by technology like Venmo or Cash App. He says other large companies have floated the idea of their own currency as well, causing central banks to react.
“So the central banks already a while ago said ‘we have to react.' React by - our response should be a Central Bank Digital Currency (CBDC), let's call it an 'e-dollar.' The United States was more hesitant. The Fed was more hesitant. Other countries are much faster in that regard,” said Hauskrecht.
Hauskrecht thinks there are some attractive features of an e-dollar for the central bank - like addressing some harder-to-trace illegal activities that use cash, for example.
Hauskrecht says in the U.S., people have voiced concerns about privacy with an e-dollar, because all currency would become traceable. Some worry trading cash for an e-dollar may impact vulnerable populations like those without internet, the elderly, or the unhoused.
But still, Hauskrecht thinks cash could be gone in 20 years. According to him, it wouldn't happen all at once.
“It will start as a parallel standard, so I don't expect that a country says, 'Okay, from three months from now there will be no cash. Bring it to the bank, and you get deposits for that.' I don't think this will happen. That would cause too much turmoil in the market, and so I think there will be at the beginning a parallel standard, and I would guess that with this parallel standard, this tendency of using less and less cash would proceed,” said Hauskrecht.
In short, he says he thinks cash will be phased out slowly and says if other countries in Europe, or China, introduce an e-dollar, he thinks the U.S. would have an equal response.
