I've been doing some thinking and research about the future of Cash, since this is a subject which seems to be on a lot of people's minds. For a variety of reasons, those who work in the cash production industry at times seem to be worried that cash may be going away, to be replaced either by card based payments or the smartphone, or a crypto-currency.
IMHO, there is little to worry about. Let me say up-front that my prediction is that cash will be with us for at least the next 30 - 50 years, and potentially longer.
But it’s the reasons why I believe that Cash will continue which are the most interesting to me, and which I plan to explore in these upcoming posts.
Here's the first: Cash will continue because it powers the informal economy, which is significant & growing, even in highly developed countries.
Like so many elements of the security industry, the “informal” economy is both hard to define and to measure. Here’s a link to the best resource page I’ve found, which is from the International Labour Organization, which starts with a definition that’s as good as any:
I also found some good data on this page in the form of a link to a 2010 report by the World Bank entitled; Shadow Economies All over the World New Estimates for 162 Countries from 1999 to 2007
I’ve combined this with some research by MasterCard Advisors which comes from their site titled; The Global Journey from Cash to Cashless, at http://www.mastercardadvisors.com/cashlessjourney/
I took the data on the estimated size of the informal economy from the World Bank study, and charted it against the data from the MasterCard site on the estimated volume and value of cash payments in the countries they studied. The MasterCard study is informative because of the 33 countries they studied, they have a cross section from developing nations in different regions of the world to highly developed countries.
I’ve sorted the chart to start with the countries with the highest estimated % of informal economic activity, that being Peru at 61.8% of GDP ranging to the US at 8.8%.
A few points that are worth pulling out:
- The volume of cash transactions never dips below 40% except for Singapore, at 39%. Even so, 39% is still a large % of the volume of total transactions
- But the value of cash transactions declines into the single digits, with most of the EU countries and Australia being at 15% or below. The US stands at 20% of value.
But the line which stood out the most to me was the estimated % of the informal economy. Even though the US stands at 8.8%, that’s 8.8% of a $15 trillion economy, or $1.32 trillion annually. And these numbers are from 2007, before the economic crisis and recession, it’s probably a safe bet to say they may be higher now.
One thing that both of these studies are clear on is that the majority of payments in the informal economy are driven by cash. The MasterCard study cites the relative size of the informal economy, and its dependence on cash, as one of the major factors impeding a country’s movement toward a cashless society.
As long as we have informal economies, I believe we’ll have cash.