A cashless world: are local banks ready? | PKF Malta

By Jurgen Dalli

Legal researcher at PKF Malta

Money makes the world go round after all. In principle, a world without money does not sound so bad yet in practice this idealistic notion is simply not feasible, or is it?  

Apart from the use of credit/debit cards are our merchants equipped to face the next cash-less society?

The technological advances in the last two decades have exceeded expectations; from the smartphone to the self-driving car to virtual reality, technology has reached an all-time high which makes one accept as true that the future is now.

In the past, to purchase an item, irrelevant of the price tag, one had to have money on their person. This is still applicable in today’s domain, however, the introduction of credit cards, debit cards and mobile wallets presented a new perspective of how we view buying, selling and other economic transactions.

These methods of payment completely by-pass the physical and tangible aspect of money. It is fast, convenient and environmentally friendly, yet, the vast majority of transactions are still conducted via cash.

One cannot deny the fact that paper money has revolutionized the way people conduct economic transactions. Other forms of payment like bartering proved to be inefficient, hence, the allocation of value to a piece of paper with which people could transact was much more effective.

Despite this, money has its fair share of glitches which makes us think if perhaps a cashless world would be something to look forward to.  

Cash payments provide a certain amount of anonymity and where tax evasion is concerned, cash proves to be a way of transacting deals which leave no trace as to the buyer and seller’s identity.

In recent years, states all over the world have vested their energy in composing a solid and robust anti-money laundering regime.

Cash is by far the preferred method of payment for those who wish to delve in illicit activities. As stated earlier, cash, unlike other methods of payment like cheques or credit cards, is untraceable.

State entities are not able to trace transactions conducted in cash, thus, criminals conveniently use cash in order to cover their illegal undertakings. Without cash, large-scale criminal activity would be much easier to detect.

Of course, no one is implying that by eradicating cash transactions, all crime would cease to exist, however, research has shown that a cashless world would mitigate the percentage of crime rates, given the trouble this change would cause to criminals.   

In similar fashion, cash enables what people call; ‘the hidden economy’. As mentioned already, money does not leave a trail, it cannot be traced, audited or tracked by the Commissioner for Inland Revenue.

When a worker receives cash payments, it is easy to by-pass tax and national insurance. Moreover, people who bring home the bacon via cash may if they wish to do so, under-report their earnings.

This is the single largest contributor to the tax gap. This is a huge problem both locally and internationally; tax evasion cost the US economy a hefty $200 billion which amounts to 1% of the country’s GDP.  

I am aware that; ‘money does not grow on trees’ is a cliché, unfortunately this saying is very true; it costs money to produce money. This might sound bizarre but it actually costs more to make a penny than it is actually worth. It costs the US $1.43 to make a penny.

No one is breaking his bank here, but producing pennies at a loss is not an ideal business strategy. Apart from this issue, producing money takes a toll on the environment as well. Money in coins requires mining, smelting, minting and transportation amongst others activities.

Cashless payments are already part of our routine. Many carry a miniscule amount of cash on their person as they keep some form of debit or credit card.

With the rise of cryptocurrencies, a world without coinage is looking more and more like the norm. If credit card payments seem old-fashioned, how does contactless payments sound?

The minds behind Facebook have come up with a revolutionary crypto-currency concept; Libra. Libra is a global, digitally native, reserve-backed cryptocurrency which has its foundation built on blockchain.

Through this cryptocurrency, people could send, receive, spend and secure their money, presenting a more inclusive global financial system.

The mission behind Libra is to introduce the concept of having a cryptocurrency being as widely trusted as any other first currency which people can use with their minds at rest.  

What Libra is doing differently than other cryptocurrencies is that Libra is fully backed by a reserve of real assets. A basket of currencies and assets will be held in the Libra Reserve for every Libra that is created, building trust in its intrinsic value.

However, this notion is nothing new. Google had already introduced something similar a few years back. Google Pay is a simple way to pay on sites, in apps and in stores using cards saved to one’s Google Account.

This further eliminates the use of physical and tangible credit cards. It is a fully digital method of payment which is easy, efficient and convenient.

Is this 100% secure one might ask? Google Pay assures us it is tamper proof. Google Pay uses an encrypted number instead of one’s actual card number in order to protect the details of the card owner.

You will no longer have to wait more than it is necessary in a line because the person in front of you cannot get his card out of his wallet because he/she is careless.

Payment options like Google Pay and Apple Pay are not only considerably more environmentally friendly but also abundantly faster, because spending money should not mean spending more time at the register.

The financial revolution is inevitable. Cryptocurrencies aren’t going anywhere.

The negative aspect of cryptocurrencies is the tendency to be used for criminal, illegal gambling and human trafficking.

Malta should stay away from such activities while licensing DLT companies and exchanges.

In this very moment, governments and tech companies seem to be pushing every citizen with a smartphone towards a cashless future.  So hold on to those money bills in your wallet.