Member Article

People Hurt more by Cashless Economies during crises

Some people predicted that COVID-19 would be the demise of cash, but it has actually demonstrated the importance of cash in today’s economy, especially in times of crisis. Moreover, it has shown the devastating effect that a cashless economy has on certain groups of people.

One critique of a cashless economy is that it potentially excludes vulnerable populations and those working in the informal sector. Taking away the ability to make cash transactions, particularly during times of crisis, can be destabilizing for those that might not have access to the Internet or a mobile phone.

The Indian government’s recent decision to require citizens to register to be vaccinated using online or mobile applications shows, like in a cashless economy, how certain populations are excluded and hurt when their only option is digital.

India’s Online Vaccine Registration

India, a country currently being ravaged by COVID-19, opened up vaccine registrations for all adult citizens on April 28th. However, Prime Minister Narendra Modi’s administration only made registration available through CoWIN, an online portal, or Aarogya, a mobile app. This policy, like their government’s goal to go cashless, further exacerbates the divide between rich and poor, urban and rural. The decision to require an internet connection and a certain level of tech savvy-ness to get vaccinated is leaving behind hundreds of millions of Indians without internet or a mobile phone. Only 34.6% of the country’s rural population has access to the internet. And in a fight for life or death, “People… on the bottom rung of the Indian society—poor, uneducated, and internet illiterate—are suffering the most.”

Cashless Move in India

People excluded from the online registration are almost the same ones that have been most negatively impacted by the Prime Minister’s decision to pursue a cashless economy. In November 2016, Modi’s government took a major step towards a cashless economy by demonetizing high-value banknotes and essentially freezing 86% of circulating cash. Among the most impacted were the 190 million Indians without a bank account, the nearly 950 million people without reliable internet access and the informal sector.

India’s informal sector accounts for almost 95% of the country’s workforce and is key to economic growth. Politician Rahul Gandhi attacked the government’s cashless push: “Small shopkeepers and workers survive on cash. Prime Minister Narendra Modi told the nation that he wants a cashless India. If India goes cashless, small shopkeepers, farmers and workers will be finished.”

However, since the initial demonetization efforts, cash in circulation has actually increased by 54%. The beginning of the pandemic triggered a countrywide ‘dash for cash’ causing a 22% one-year surge in the cash supply. Similar to most other countries, the Asia Times notes that, “In the wake of the economic uncertainty caused by Covid-19 and to deal with any untoward medical emergencies, people preferred having cash as a precautionary measure.”

India, with its huge population and large economic disparities, demonstrates on a larger-scale how a cashless economy further disenfranchises vulnerable populations and exacerbates existing socio-economic inequalities. Particularly in times of crisis, people need cash to stay afloat and to contribute to the country’s economic health.

Beyond India

India is certainly not the only country with at-risk populations that depend on cash. An estimated 1.7 billion people worldwide do not have a bank account and over 2 billion make a living in the informal economy. According to the ILO, “informal employment represents 90 per cent of total employment in low-income countries, 67 per cent in middle-income countries and 18 per cent in high-income countries.” That’s a lot of people that rely on cash to make a living and pay employees.

The African Development Bank estimates that 322 million Africans did not have a bank account in 2021. In Kenya, an economic survey done in 2020 found that informal enterprises represented 90% of the country’s employment. And as the researchers concluded, “Self-employment in informal enterprise increases vulnerability while reducing access to finance and services. The situation is worse during the current Covid-19 pandemic.” Such statistics explain why cash is still king on the continent.

It is often ignored that large numbers of people in ‘rich’ countries are also unable to make cashless payments. The elderly, immigrants, domestic abuse survivors, those with modest incomes, day laborers, people making a living off tips and small local shops that cannot afford to pay credit card transaction fees all rely on cash. Domestic abuse victims, for example, might be able to make cashless payments, but doing so could put them at risk if their abusers are monitoring bank transactions.

An estimated quarter to a third of Americans are unbanked or underbanked (do not use cards because of transaction fees). About 1.2 million Brits do not have a bank account. Digital payments require an internet connection, costly devices such as a phone or computer and a certain level of financial and digital literacy. Even in rich countries, many do not have access to some, or all, of these.

Bill Maurer, an anthropologist specializing in financial technology, explains, “As long as there are poor people or refugees and immigrants or the elderly or the disabled, where traditional financial institutions are not accessible enough, there will be a need for cash.” Cash is necessary for their financial and social inclusion and for their ability to contribute to the economy.

Cash Fuels Economic Recovery

The importance of cash for stimulating economic recovery post-crisis is not limited to vulnerable populations. Many people see banknotes as a secure and concrete representation of one’s financial security. Historically, the demand for cash increases during times of uncertainty and today’s pandemic is no exception. At the beginning of the crisis, there was a worldwide ‘dash for cash’ and The Economist observed, “Households have certainly accumulated lots of cash.” Once cash is stashed, it needs somewhere to go. With restaurants and stores re-opening, people are now spending that cash. If history repeats itself, this should lead to a quick economic recovery or even a boom. AJ Bell analyst, Laith Khalaf notes that, “The Bank of England is expecting a consumer spending spree to fuel an explosive economic recovery this year, funded by the war chest savers have built up throughout the pandemic.” And England is certainly not the only country that can expect spending sprees.

**Cash is Needed, Especially During a Crisis **

Denying people the ability to use cash means taking away their most trusted asset. When the elderly can no longer pay bills with cash, migrant families cannot pay their rent because they cannot open a bank account or the neighborhood mom-and-pop store closes since they cannot afford to install credit card terminals, economies lose potential contributors. This not only hurts families that are already struggling, but also the economy. If access to cash is left unrestricted, particularly in times of crisis, such individuals will be in a better position to spend money and contribute to the much-needed economic recovery.

This was posted in Bdaily's Members' News section by Sofia Thomas .