Cash in the age of the digital revolution – Economy and Finance

Cash as a guarantee of freedom Image: Felix Pfitscher

Cash is becoming less important. Digital payment methods are becoming increasingly popular and are changing consumer behavior in the long term. Despite this development, cash is unlikely to disappear completely. The European Central Bank (ECB) has been documenting the gradual decline in cash use in the euro area for years. This development has been accelerated by technological innovations and the increasing use of digital payment methods. In particular, contactless card payments and mobile payment systems such as Google Pay, Apple Pay, PayPal and other electronic wallets make cashless transactions not only easier but also more convenient.

Online banking and instant payments (real-time transfers) have also increased the attractiveness of digital money. The COVID-19 pandemic has further reinforced this trend. Many people avoided physical cash for hygiene reasons during the pandemic and switched to electronic forms of payment. Retailers increasingly began to rely on card payments or contactless systems to minimize the risk of infection. Studies show that these changes in consumer behavior are sustainable, which indicates that the relevance of cash is continuing to decline.

Cash as a guarantee of freedom: Despite the disadvantage, cash is still a symbol of freedom and security in the eyes of many Europeans. It enables transactions without intermediaries such as banks or payment service providers and protects the privacy of the individual as no digital traces are left behind. For some people, especially in rural areas or among older population groups, cash remains the preferred way to pay. In countries such as Germany, Austria and Italy, cash is particularly firmly anchored in culture and tradition. There is also political resistance to a complete phasing out of cash.

Both civil rights organizations and some parties are against a purely digital economy, as they see the risk that citizens could lose their financial autonomy. Data protection plays a central role here, as electronic payments are often easily traceable. Initiatives to preserve cash: The European Central Bank has repeatedly stressed that cash will retain its place even in an increasingly digital economy. In July 2023, the ECB stated that it would continue to ensure the availability and use of cash despite the continued growth of electronic payments.

Many countries have also taken legal measures to ensure that cash is retained in certain areas. For example, some European countries have caps on the minimum amount merchants must accept for cash transactions. In addition, there are considerations of central bank digital currencies (CBDCs), which could provide a kind of bridge between the digital and physical worlds. These digital currencies would be issued directly by central banks and could offer similar security features to cash, such as privacy and security, while ensuring the efficiency of digital transactions.

Cash as a niche product: Although the trend is clearly moving towards an increasingly cashless society, there is much to suggest that cash will continue to play a niche role. In certain situations, such as for smaller amounts or in regions with poor digital infrastructure, cash will remain important in the future. It will also remain a safety reserve that people can fall back on in times of crisis or technical disruptions. In the longer term, however, cash in Europe could increasingly be restricted to specific areas of use, such as in tourism or as an emergency solution in the event of power outages.

A complete abolition seems unlikely, but the role of cash will continue to change – towards a more complementary means of payment in a digital world. Conclusion: Cash is becoming increasingly less important in Europe, but a complete disappearance is currently not foreseeable. Digital payments offer clear advantages in terms of convenience and efficiency, which makes them increasingly popular. Nevertheless, cash remains an essential means for those who value privacy and financial autonomy. The future will bring a coexistence of digital payment methods and cash, with the latter probably playing an increasingly smaller but still important role in an increasingly digital society.