Cash has an expiration date

New methods of payment will substitute paper money in the future

Payment in a shop via Samsung Pay.
Payment in a shop via Samsung Pay.

Money was originally introduced as a way to simplify the financial system and leave behind the barter economy, which was based on the transaction of goods. Although historians do not agree on when the first coin was invented, our trust in this method of transaction has undeniably increased over the years. At the beginning one coin had the same value as its weight but this changed because of a lack of precious metals.

Nowadays, Fiat money – that’s to say a currency established by government regulation – is “paper printed with different colors” according to Xavier Cuadras, macroeconomics professor at the Universitat Pompeu Fabra in Barcelona. But people agree that these pieces of paper have value and everyone accepts them because they will be able to buy other things with them in the future.

Now, however, the technological age is set to digitize money. The rise of credit card transactions is the first sign of this. Danish clothing stores, gas stations and restaurants can now show a sign that says “no cash accepted,” and force their customers to pay by credit card or cellphone. In other countries the use of plastic is not so widespread: the average Dutch person makes 340 card transactions a year, a Spaniard only 120. But what is the future for money? Will cash disappear over the coming decades?

Local currencies

In order to eliminate cash, we need both a technology that allows us to make any kind of payment and a way to save our money, as keeping it in our pocket won’t be an option. That technology already exists and some towns are starting to implement it to create “local currencies”. The idea is to boost the local economy, as the currency will only be accepted in one specific town.

An example of this can be found in Santa Coloma de Gramenet, a town on the outskirts of Barcelona. Following the construction of two local shopping centers, a lot of small shops started to close. Faced with this, Santa Coloma’s City Hall created a local digital currency, the Grama, which will begin to circulate in 2017.

The way it works is quite simple: Santa Coloma’s City Hall will allocate funds to local associations through an app and this money will have to be used in the hundreds of shops that have signed up to the scheme. These shops can then either use the currency in other local stores or wait two months and exchange it for euros.

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“The app is a cheaper system to sustain a local currency, you do not have to invest in cash registers and logistics to introduce money to the market,” explains Andreu Honzawa from Ubiquat Technologies, the company that developed the software for the Grama. He insists that the app gives users more options than cash, since you can find shops that accept the currency, check your account in real time and keep a record of all the transactions you have made, actions that would be impossible with a printed currency.

Similar initiatives are starting to appear throughout Europe. Small cities in England, France, Italy and Switzerland have founded their own local currencies and Barcelona has decided to take the plunge too: the Catalan capital’s City Hall will start a pilot project in 2017 that has received subsidies from the European Union. This money will, at first, only be accepted in Eix Besos, an area that consists of three districts: Nous Barris, Sant Andreu i Sant Martí. Naturally, the Barcelona local currency will be digital too.

A world without cash

While people are changing their payment habits, so too are institutions. Ester Oliveras, professor of macroeconomics at the Universitat Pompeu Fabra, explains that the London Underground has changed its ticket machines, with the new ones only accepting payment by card. Private organizations are also making the change: some Swiss banks are removing their cash machines from city centers so that locals will have to make an effort to get paper cash. “It is all about people’s comfort, we adapt to the easiest situation,” adds Oliveras, who predicts that cash will eventually disappear.

Technology is changing constantly and in the future credit cards may also become obsolete, with many companies working on biometric payment technology. In 2005, passports and visas incorporated biometric information, such as the fingerprint, followed five years later by facial recognition. Geyce is the Spanish company in charge of these modifications. Its technology director Joan Vilasseca says that, although new techniques have evolved, he doubts people will accept biometric payment until a public institution promises to keep client information safe.

Protecting individual privacy will be one of the major concerns when cash disappears

One advantage of biometrics is it eliminates the use of a password to authenticate the user. Vilasseca says that some banks are already using facial information to identify clients. “If a VIP goes into a bank office, the cameras will recognize him and the director will receive a notification on his computer,” he says. The next step is to introduce this technology into cash machine cameras to detect criminals who are trying to make transactions with stolen cards.

Vilasseca believes that cash will soon disappear as biometric methods have already become widespread in our society. Other specialists in digital payment, such as Honzawa, do not believe that the transition will happen so fast. However, Honzawa predicts the abolition of small coins and big notes because “the value of one, two and five coins is useless with the fluctuations of inflation and big bills facilitate tax fraud and fiscal evasion.”

The fight against fraud

But whether digitization comes from implementing biometrics in payment or using credit cards instead of paper notes, one thing is certain: in the future every transaction will be registered. And this will mean a reduction in the shadow economy, which has proved a big problem in Spain. As Xavier Cuadras explains, “If you can’t pay the plumber with paper money and you have to pay with credit card, you won’t be able to pay him without adding taxes.”

Large-scale criminal activity could also be reduced but for this to happen Oliveras says “every currency would have to disappear. “Because if the euro disappears but the dollar is still paper money, fraud could continue,” Oliveras adds. “You would only have to change currency.”

All of this would be possible because somebody would have information on every economic transaction that we make. But the question is who?

Loss of privacy

If governments decide to eliminate cash, they would have to make sure that everyone has access to the technology that allows cash-free payment. That is what Antonieta Fernández, professor in administrative law at the Universitat Pompeu Fabra and advisor in the Grama project, believes. “The law should guarantee that transactions are possible and that there is universal access to the means,” Fernández adds.

More information
Bristol to Barcelona: “Be as ambitious as possible with new local currency”
Barcelona City Hall presses ahead with local currency scheme despite warnings
Will you be paying for that in zoquitos or in txantxis?

This could be done in two different ways. The first is that the Central Bank of each country allows citizens to deposit money in a state-regulated account. That would restrict the power of commercial banks and only the state would have access to our private information, like the economic transactions we make. However, this would need massive investment from governments, as they would have to create a new financial network from scratch.

Another option is that citizens continue to deposit money in commercial banks. But to do this in the digital era would give banks a lot of power, as they would control all the associated data. “It is not necessary that in a sector of activity there is a public body, as long as the rules of the game are set by a public regulator,” says Fernández. “For example, calling 112 is free. That is because it is an obligation of public service.”

Protecting individual privacy will be one of the major concerns when cash disappears, something that every expert we spoke to agrees will happen one day. What they don’t agree on, is when this will happen. Some experts believe that this will be a progressive change that could last a couple of generations; others are confident that the transition will only take a few years. However, everything points to the fact that cash has an expiration date.

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